# Applying a panel network formation model to limited partnership matching in the private capital market

## TL;DR

This paper studies how limited partners and general partners match in private capital markets using network models to reveal patterns and improve market efficiency.

## Contribution

The study introduces a novel application of temporal exponential random graph models to analyze private capital market matching dynamics.

## Key findings

- Activity and popularity effects influence LP-GP matching in private capital markets.
- Homophily in region, strategy, and industry preferences shapes network formation.
- A shared network formation process exists across asset classes in private capital.

## Abstract

In private capital investment, limited partners (LPs) and general partners (GPs) frequently encounter the challenge of finding suitable counterparts amid limited information, a process often hindered by market inefficiencies. This article addresses this issue by exploring the micro-level mechanisms that shape private capital networks, employing temporal exponential random graph models. Our findings uncover activity and popularity effects, persistence mechanisms, and homophily in preferences concerning region, strategy, and industry. These factors jointly shape the dynamically evolving network structure across asset classes and the hybrid network with all asset classes, revealing a shared network formation process. This article offers practical insights into the matching problem within the private capital market.