The Interactive Political Economy: An Analysis of Global Private Equity Fundraising

The interaction of economics, law and politics – or political economy – has been shown to have a clear effect on foreign domestic investment, but to date its distinct effect on “patient capital” strategies has yet to be investigated.  Based on 10-year investment funds, the private equity (PE) industry is uniquely dependent on consistent policy and stability for returns, but its longer-term structure could make some level of risk more attractive in pursuit of higher returns.  Using a fundraising dataset, this paper tests the significance of six variables approximating the political economy of countries targeted by PE funds. These variables are found to be significant predictors of fundraising success when interacted with each other, but not always in an intuitive way.  This paper argues that beyond a baseline of stability and consistency, PE investors may prefer the less transparent markets as a way to enhance the value of their patient, longer-term strategies.