Abstract
This paper provides first causal evidence for the contribution of investors within a private equity fund to fund performance. The evidence reconciles the performance persistence puzzle in private equity with the persistence in investor composition across funds. An unexpected increase in the number of investors due to the JOBS act serves as a natural experiment. A fuzzy RDD relies on the fund manager’s imprecise control over a fund’s final close date relative to the JOBS act’s effective date. Fewer and more liquid investors exhibit positive effects on fund performance. Investors’ liquidity influences fund manager’s effort and choice of portfolio companies.
