Yilmaz Bekyol, Bernhard Schwetzler

• This study considers the trade-off between better top management team (TMT) decision-making involving complementary perspectives and inefficiencies due to conflicts between individuals. In analyzing characteristics of 1,071 fund partners involved in 1,295 buyout deals by 117 funds, we find that TMTs with greater variety in socio-demographic aspects achieve higher money multiples or IRR. In contrast, greater occupational diversity is associated with a negative net effect on performance. This suggests that the endowment of diversity rooted in demographic characteristics is generally beneficial, while voluntarily acquired attributes are associated with higher coordination efforts. Additionally, we find the allocation of team members and the associated diversity levels on individual deals of a fund affect fund performance. Generally, an even allocation is positively (negatively) related to fund performance for occupational (socio-demographic) diversity. However, for funds with a high enough endowment of diversity, even distribution across deals is also positively associated with fund performance for socio-demographic diversity. Finally, we find a positive moderating impact of CEO involvement and a negative moderating impact of industry specialization. Overall, the results of this study could guide LPs and fund-of-funds in investment processes and support GPs with staffing decisions.