Misconduct and Fundraising in Private Equity

Beginning in 2012, private equity (PE) fund advisers must register with the SEC and disclose information regarding misconduct committed by the advisers or their affiliates. We find that the disclosure of misconduct reduces PE fund advisers’ ability to raise future funds. Among different types of LPs, public pension funds are most averse to misconduct disclosure. Further, misconduct disclosure reduces the likelihood that a fund’s existing investors commit capital to a GP’s subsequent PE funds, suggesting that the public disclosure of misconduct deters both current and new investors. This study sheds light on the effects of mandatory disclosure in the lightly regulated PE market. Our findings also contribute to the growing literature on the economics of misconduct.