Publicly traded venture capital funds: implications for institutional “fund of funds” investors

Institutional investors supply the bulk of the funds which are used by venture capital investment firms in financing emerging growth companies. These investors typically place their funds in a number of venture capital firms, thus achieving diversification across a range of investment philosophy, geography, management, industry, investment life cycle stage and type of security. Essentially, each institutional investor manages a “fund of funds,” attempting through the principles of portfolio theory to reduce the risk of participating in the venture capital business while retaining the up-side potential which was the original source of attraction to the business. Because most venture capital investment firms are privately held limited partnerships, it is very difficult to measure risk adjusted rates of return on these funds on a continuous basis.In this paper, we use the set of twelve publicly traded venture capital firms as a proxy to develop insight regarding the risk reduction effect of investment in a portfolio of venture capital funds, i.e., a fund of funds. Measurements of weekly total returns for the shares of these funds are compared with similar returns on a set of comparably sized “maximum capital gain” mutual funds and the daily return of the S&P 500 Index. A comparison of returns on an individual fund basis, as well as a correlation of daily returns of these individual funds, were made. In order to adjust for any systematic bias resulting from the “thin market” characteristic of the securities of the firms being observed, the Scholes-Williams beta estimation technique was used to reduce the effects of nonsynchronous trading.The results indicate that superior returns are realized on such portfolios when compared with portfolios of growth-oriented mutual funds and with the S&P 500 Index. This is the case whether the portfolios are equally weighted (i.e., “naive”) or constructed to be mean-variant efficient, ex ante, according to the capital asset pricing model. When compared individually, more of the venture funds dominated the S&P Market Index than did the mutual funds and by much larger margins. When combined in portfolios, the venture capital funds demonstrated very low beta coefficients and very low covariance of returns among portfolio components when compared with portfolios of mutual funds. To aid in interpreting these results, we analyzed the discounts and premia from net asset value on the funds involved and compared them to Thompson's findings regarding the contribution of such differences to abnormal returns. We found that observed excess returns greatly exceed the level which would be explained by these differences.The implications of these results for the practitioner are significant. They essentially tell us that, while investment in individual venture capital deals is considered to have high risk relative to potential return, combinations of deals (i.e., venture capital portfolios) were shown to produce superior risk adjusted returns in the market place. Further, these results show that further combining these portfolios into larger portfolios (i.e., “funds of funds”) provides even greater excess returns over the market index, thus plausibly explaining the “fund of funds” approach to venture capital investment taken by many institutional investors.While the funds studied are relatively small and are either small business investment companies or business development companies, they serve as a useful proxy for the organized venture capital industry, despite the fact that the bulk of the funds in the industry are institutionally funded, private, closely held limited partnerships which do not trade continuously in an open market. These results demonstrate to investors the magnitude of the differences in risk adjusted total return between publicly traded venture capital funds and growth oriented mutual funds on an individual fund basis. They also demonstrate to investors the power of the “fund of funds” approach to institutional involvement in the venture capital business. Because such an approach produces better risk adjusted investment results for the institutional investor, it seems to justify a greater flow of capital into the business from more risk averse institutional investment sources. This may mean greater access to institutional funds for those seeking to form new venture capital funds. For entrepreneurs seeking venture capital funds for their young companies, it may also mean a lower potential cost of capital for the financing of business venturing. From the viewpoint of public policy makers interested in facilitating the funding of business venturing, it may provide insight regarding regulatory issues surrounding taxation and the barriers and incentives which affect venture capital investment.     

Private investment in small public entities

Private placements provided by institutional or individual accredited investors are becoming an important financing tool for small public firms worldwide. However, private placement issuers offer poor average returns. We explain this puzzle using 2,987 traditional private placements by Canadian small public firms over a decade. We observe significant long-run post-issue underperformance using a classic factor pricing model. This underperformance is partially erased when the returns are adjusted to consider the issuers’ high level of investment, and to include the discount granted to private investors. We split the sample by the glamour/value dimension and by the firms’ investment activity. Only glamour firms with high investment activity underperform in the long run. Private investors obtain positive returns on placements in value and high investment firms. However, they overestimate investment projects of glamour firms.     

机构投资者实地调研与投资-股价敏感性——基于管理层学习效应视角

文章利用2013-2018年深圳证券交易所上市公司的数据,实证检验了机构投资者实地调研对投资-股价敏感性的影响。研究发现机构投资者实地调研提高了公司投资-股价敏感性,在股价信息含量越高时,机构投资者实地调研对公司投资-股价敏感性的影响越显著,表明投资者实地调研通过信息反馈效应中的“挤入渠道”增强了管理层向市场的学习行为,机构投资者实地调研对投资-股价敏感性的影响在管理层持股的上市公司中更为显著。研究结果表明机构投资者实地调研可帮助上市公司管理层获取更多决策有用信息,提升资源配置效率,对于完善机构投资者调研制度、提升我国资本市场信息效率具有一定的实践价值。     

Social Issues and Socially Responsible Investment Behavior: A Preliminary Empirical Investigation

An important dimension of the ongoing trend toward greater corporate social responsibility is the emergence of individual and institutional investors who invest in companies that support social objectives. While a small number of studies have examined the criteria used by institutions, no studies have looked at individual investors. Using a mail survey of 4,000 investors in two mutual funds that incorporate social screens in their investment decisions, this study finds that compared with other investors, socially responsible investors are younger and better educated. Respondents most frequently identify environmental and labor relations issues when asked what defines socially responsible corporate behavior. Although the respondents value socially responsible behavior in companies they invest in, they are unwilling to sacrifice financial returns to achieve it.     

机构投资者的羊群行为能降低投资风险吗?——来自中国上市公司的证据

机构投资者的羊群行为对投资风险影响的实证分析结果表明: 机构投资者存在羊群行为,卖出羊群行为的程度大于买入羊群行为的程度,而且卖出羊群行为加大了投资风险、降低了投资回报率; 买入羊群行为减少了投资风险、提高了投资回报率。因此,加大监管机构投资者卖出羊群行为有利于降低投资风险,并促进证券市场稳定发展。     

机构投资者对企业国际化的影响研究——来自2004～2007年制造业上市公司的证据

本文采用2004～2007年制造业上市公司的数据考察了机构投资者对企业国际化的影响。研究发现,机构投资者的持股对制造业企业的国际化有促进作用;并且不同类型的机构投资者的作用并不相同,其中基金和QFII有显著的促进作用。这些研究结果表明机构投资者积极主义在我国制造业上市公司中有所体现,机构投资者持股有利于我国制造业企业的国际化,实施"走出去"战略。本文基于以上结论,对我国发展不同类型的机构投资者提出了相应的建议。     

Foreign institutional investors and dividend policy: Evidence from China

This study examines whether foreign institutional investment influences firms’ dividend policies. Using data from all domestically listed nonfinancial firms in China during the period of 2003–2013, we find that foreign shareholding influences dividend decisions and vice versa.Furthermore, changes in dividend payments over time positively affect subsequent changes in foreign shareholding, but the opposite is not true. Our study indicates that foreign institutional investors do not change firms’ future dividend payments once they have made their investment choices in China. Moreover, they self-select into Chinese firms that pay high dividends. Our evidence suggests that in an institutional setting where foreign investors have tightly restricted access to local securities markets and a relatively high risk of expropriation by controlling shareholders exists, firms can use dividends to signal good investment opportunities to foreign investors.     

Factors that determine the reputation of private equity managers in developing markets

This paper analyzes the relationship between investors and private equity managers in order to identify the factors that affect the latter's reputation. Since there are no individual references about their past returns in developing private equity markets, the reputation of such players is thought to be linked to their capacity for obtaining new funds. Results provide evidence of the volume of investments recorded in the past, the ratio of portfolio companies to investment manager, the percentage of divestments carried out through initial public offerings and trade sales, the membership of the national private equity association and the size of funds under management as characteristics of the highest importance in raising funds.     

Institutional trading in IPOs and post-IPOs: Value-based vs speculative

Using a unique dataset from Shanghai Stock Exchange, we study institutional trading behaviors in IPOs and post-IPOs. From the perspective of value-based or speculation, we find that, (1) institutional investors are flippers on the first day of IPOs, (2) trading by institutional investors and the active institutional investors (mutual funds or brokerage) is value-based, and (3) the net buys of institutional investors can predict the long term performance of IPO-firms and shows a negative relation with a bubble in future. Since individual investors are the opponent of institutional investors, our results mean that individuals are speculators in the market. Our study suggest that institutional investors are the sophisticated ones in the market and they can process information more efficiently, whose value-based trading can enhance market price discovery and is good for market stabilization.     

Institutional Interest,Ownership Type,and Environmental Capital Expenditures: Evidence from the Most Polluting Chinese Listed Firms

This study empirically examines whether firms’ environmental capital expenditures impact institutional investors’ investment decisions in the Chinese market. We particularly examine the impact of ownership type on the relationship of environmental capital expenditures and the behavior of different types of institutional investors by classifying institutional investors into two categories, short-term and long-term investors. In addition, this study further investigates whether environmental capital expenditures related to ownership type increase firm value. We find that long-term institutional investors tend to invest in state-owned firms (SOEs) making environmental capital expenditures. Results also indicate that, with governmental backing and encouragement, the market value of SOEs making more environmental capital expenditures is likely to increase. However, no similar results are found for non-SOEs.     

Does socially responsible investment equity indexes in emerging markets pay off? Evidence from Brazil

This paper explores the financial performance of a mainstream socially responsible investment equity index in emerging markets: the Brazilian Corporate Sustainability Index. The results indicate that investors in emerging markets could accommodate their ethical values while at the same time not scarifying their overall portfolio performance in bullish market periods. However, the financial crisis led ethical investors to take a riskier and less profitable portfolio. These results seem to be due to socially responsible investment in Brazil that, as with other emerging markets, is highly influenced by social and institutional factors.     

机构投资者对现金股利影响的实证分析

机构投资者和现金股利被认为具有保护投资者利益的功能,但现有文献缺乏对机构投资者和现金股利关系的分析。利用2001—2009年上市公司数据进行实证分析,结果表明:机构投资者数量和信息披露对现金股利有显著性正面影响,而个人投资者数量对现金股利有显著性负面影响,说明机构投资者有股利偏好行为,信息披露有强化股利信号的传递功能。实证结果还表明,机构投资者的数量比所有权对现金股利有更重要的影响。     

The conditional relationship between beta and returns: recent evidence from international stock markets

The risk–return relationship is one of the fundamental concepts in finance that is most important to investors and portfolio managers. Finance theory argues that the beta or systematic risk is the only relevant risk measure for investors. However, many studies have showed that betas and returns are not related empirically, no matter in domestic markets or in international stock markets. This paper examines the conditional relationship between beta and returns in international stock markets for the period from January 1991 to December 2000. After recognizing the fact that while expected returns are always positive, realized returns could be positive or negative, we find a significant positive relationship between beta and returns in up market periods (positive market excess returns) but a significant negative relationship in down market periods (negative market excess returns). The results are robust for both monthly and weekly returns and for two different proxies of the world market portfolio. Our findings indicate that beta is still a useful risk measure for portfolio managers in making optimal investment decisions.     

“价值投资型”股票估价方法研究

随着近两年证券市场结构性大调整 ,价值投资组合已成为机构投资者的主导策略 ,而证券估价是价值投资和证券筛选型投资组合的核心技术。我国证券市场历史较短 ,针对其衍变特征和估价现状 ,研究较为适合我国证券市场的“价值投资型”股票的估价方法大有俾益。     

Strategic Portfolio Management Model

Abstract

Institutional investors look forward to extra-ordinary returns in the new millennium. Yet, many have not displayed knowledge of scientific models such as modern portfolio theory, capital asset pricing model, and other financial assets investment management approaches, particularly within the local setting. They indiscriminately take risk by investing in subjectively determined options. We surveyed 44 quoted and unquoted companies, typical of emerging economies using Nigeria as a case. The test of hypotheses reveals that the firms' basis of portfolio selection is traditional. Investment risk is taken for granted. Also the homogeneity of portfolio components, though attractive in the short-run, adversely affect investment returns in the long-run. We, therefore, recommend the departmentalization and standardization of the corporate investment management process, reorientation and direction of organizational functionaries towards effective adoption of scientific approaches as integrally represented by the strategic portfolio management model, exemplified in this work.     

Investor behavior and volatility of futures market: A theory and empirical study based on the OLG model

Investor trading behaviors are always an important issue in behavioral finance and market supervision. This study examines the relationship between investor behavior and future market volatility. We first introduce a two-period OLG model into the futures market, and develop an investor behavior model based on future contract price. We then extend the model to two scenarios: complete and incomplete information. We provide the equilibrium solution, and develop two hypotheses, which are tested with cuprum tick data in Shanghai Futures Exchange (SHFE). Empirical results show that the two-period OLG model for future market is consistent with the market situation in China. More specifically, investors with sufficient information such as institutional investors usually adopt the contrarian trading strategy, whereas investors with insufficient information, e.g., individual investors, usually adopt the momentum trading strategy. These findings reveal that investor behaviors in the Chinese futures market are different from those of in the Chinese stock market.     

CSR Disclosure Items Used as Fairness Heuristics in the Investment Decision

The growth in demand for corporate social responsibility (CSR) information raises the question of how various CSR disclosure items are used by investors, an important stakeholder group driven by instrumental, moral, and relational motives. Prior research examines the instrumental motive to maximize individual shareholder wealth and the moral motive to actualize personal stewardship interests. We contribute to the literature by examining investors’ relational motive to realize positive stakeholder relationships within and between organizations and communities. The relational motive arises when investors look at a company’s treatment of other stakeholder groups as a heuristic to form a perception of how fairly they will also be treated by that company in the future, and thus invest in the company they perceive as fair. Fair treatment in the future matters to the investor who purchases stock from the company or via the capital markets in exchange for becoming a shareholder and thus a residual claimant of the company. As such, the investor expects future cash flows from holding and/or reselling the stock and expects to be treated fairly by the company in the future. We propose that investors, use as a fairness heuristic, CSR disclosure items—CSR investment level or CSR assurance—that represent the company’s commitment to its stakeholders, and that the resulting fairness perception affects the extent to which the CSR disclosure items influence their investment decision. Using responses from 113 investors in an online experiment, we find that fairness perceptions are higher when CSR investment is above (versus below) the industry average, and that fairness perceptions partially mediate the impact of the CSR investment level on investment amount allocations. We do not find that the presence (versus absence) of CSR assurance is used by investors as a fairness heuristic. Our results are robust to controlling for preferences for financial performance and hence investors’ instrumental motive, and to controlling for individual environmental attitudes, and hence investors’ moral motive. Implications for future research and public policy are discussed.     

中国资本市场泡沫与市场信用建设——由资本市场上的“羊群效应”引发的思考

中国资本市场机构投资者严重缺乏 ,个人投资者占主导地位。信息不对称使非理性投资主体大量产生 ,引发“羊群效应” ,这主要是由于机构投资者的产权不明晰造成的。减少中国资本市场泡沫 ,必须大力加强资本市场信用的建设 ,而这又离不开机构投资者产权的明晰界定。     

媒体关注对IPO抑价影响路径探究——基于创业板的经验证据

文章重点探讨媒体关注对我国IPO抑价影响的具体路径。基于上市公司IPO及之前的媒体信息,选取创业板IPO公司作为研究样本,从行为金融学视角对抑价理论进行实证检验。经路径研究发现,高媒体关注通过配置投资者“有限注意力”导致高发行抑价,在个人投资者比例较高的创业板市场上,媒体关注对IPO抑价的影响路径是基于情绪效应而不是认知效应。     

Value investing in emerging markets: risks and benefits

This paper identifies a subset of emerging markets that have higher than average expected returns and studies risk properties of this subset by investment simulations. It is found that: (1) the portfolio of ‘value’ emerging markets generates superior returns; and (2) statistical measures of its risk are close to the corresponding measures for the portfolio of all emerging markets. The statistical significance of these results has been checked by a bootstrap procedure. The results imply that the optimal share of emerging markets increases from 0% for an equally weighted portfolio to approximately 25% for the portfolio of undervalued emerging markets.