Despite the remarkable growth of individual investors in private markets, little is known about their investment patterns. We test the impact of investor expertise on venture capital fund selection by conducting an experiment with limited partners. By fixing access to investment opportunities, we isolate fund selection behavior. We compare the selections of professional and individual investors. Both groups aim to select highperforming funds but differ in their beliefs about which fund managers (GPs) deliver high returns. Professionals prefer GPs with strong past returns, while individuals favor GPs with elite educational backgrounds, but place less emphasis on past performance. Our estimates suggest that fund selection alone could explain 20% of the difference in returns between professionals and individuals.
Shane Miller, University of Michigan
Emmanuel Yimfor, Columbia University
Ye Zhang, Stockholm School of Economics