Suboptimal Risk–Return Profiles in Private Equity: The Case of Minority Business Enterprises Investing

Abstract

Socially responsible investing 2 results have fallen short of expectations [Amenc and Le Sourd, 2008]. The influence of SRI criteria on listed companies is still rather limited, as the investment methods used by SRI fund managers rely essentially on stock filtering. The next possible target for SRI guidelines could be small and medium-size businesses through PE investing. Investors could ideally use SRI criteria on small businesses thanks to superior corporate governance and shareholder involvement. Direct PE 3 has been identified as a superior investment tool [BVCA, 2008; Gottschalg, Talmor and Vasvari, 2010], by promoting the alignment of interests between investors an managers thanks to efficient governance standards (at the portfolio company level [Chemmanur, Krishnan and Nandy, 2008; Katz, 2008]) and high level of shareholder involvement [Acharya, Hahn and Kehoe, 2010; Meerkatt et al 2008; Quiry and Le Fur, 2010]).

The initial version of this chapter was published in the Journal of Private Equity , Fall 2011, Vol. 14, No. 4, pp. 61–72. This paper has been amended (its first part now being in Chapter 0), reviewed and augmented to reflect additional critiques and discussions, reflected in the current chapter.