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Ulf Axelson
Abraaj Capital Reader in Finance and Private Equity
London School of Economics and Political Science

E-mail: u.axelson@lse.ac.uk
Phone: +44 (0)20 7107 5070
Fax:+44 (0)20 7849 4647

Curriculum Vitae (PDF-file).
Short Biography
Selected Publications
Working Papers
Work in Progress


Short Biography

Ulf Axelson joined the London School of Economics in 2009. Since February 2010, he is the Abraaj Capital Reader in Finance and Private Equity and the director of the MSc in Finance and Private Equity program. Dr Axelson was previously an Associate Professor of Finance at the Stockholm School of Economics, and before that an Assistant Professor of Finance at the Graduate School of Business of the University of Chicago. He received his Ph.D. in Financial Economics from Carnegie Mellon University and holds an MBA from the Stockholm School of Economics.

Doctor Axelson's research lies within the fields of private equity, financial innovation and security design, corporate finance, auction theory, and financial intermediation. His research has been published in leading finance journals such as the Journal of Finance and the Review of Financial Studies, and has been widely presented at leading universities as well as numerous conferences. He won the Brattle Group Prize for the best paper in corporate finance published in the Journal of Finance 2009 (for the paper “Why are Buyouts Levered? The Financial Structure of Private Equity Firms”, joint with Per Strömberg and Michael Weisbach), and his research was awarded the Henderson Award for Excellence in Economic Theory in 2000.

At the London School of Economics, Dr. Axelson has been teaching corporate finance to MSc Accounting and Finance and MSc Strategy and Economics students.  He has also taught corporate finance courses at the Stockholm School of Economics and the University of Chicago. Doctor Axelson was awarded the “Best Teacher” award in the MBA program at the Stockholm School of Economics in 2006.

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Selected Publications

“Security Design With Investor Private Information,” Journal of Finance 62:6, December 2007, pp. 2587-2632

(Finalist for the Brattle Group Prize for the best corporate finance paper published in the Journal of Finance)

Abstract: I study the security design problem of a firm when investors rather than managers have private information about the firm. I find that it is often optimal to issue information-sensitive securities such as equity. The “folklore proposition of debt” from traditional signaling models only goes through if the firm can vary the face value of debt with investor demand. When the firm has several assets, debt backed by a pool of assets is optimal when the degree of competition among investors is low, while equity backed by individual assets is optimal when competition is high.

“Liquidity and Manipulation of Executive Compensation Schemes,” with Sandeep Baliga, Review of Financial Studies 2009: 22, pp. 3907-3939

 

Abstract: Compensation contracts have been criticized for encouraging managers to manipulate information. This includes bonus schemes that encourage earnings smoothing, and option packages that allow managers to cash out early when the firm is overvalued. We show that the intransparency induced by these contract features is critical for giving long-term incentives. Lack of transparency makes it harder for the owner to engage in ex post optimal but ex ante inefficient liquidity provision to the manager. For the same reason, it is often optimal to “pay for luck” - i.e., tie long-term compensation to variables that the manager has no influence over, but may have private information about, such as future profitability of the whole industry.

 

“Why are Buyouts Levered? The Financial Structure of Private Equity Firms,” with Per Strömberg and Michael Weisbach, forthcoming, Journal of Finance 64:4, August 2009, pp. 1549-1582

(Winner of the Brattle Group Prize for the best corporate finance paper published in the Journal of Finance)

 

Abstract: Private equity funds are important actors in the economy, yet there is little analysis explaining their financial structure. In our model the financial structure minimizes agency conflicts between fund managers and investors. Relative to financing each deal separately, raising a fund where the manager receives a fraction of aggregate excess returns reduces incentives to make bad investments. Efficiency is further improved by requiring funds to also use deal-by-deal debt financing, which becomes unavailable in states where internal discipline fails. Private equity investment becomes highly sensitive to economy-wide availability of credit and investments in bad states outperform investments in good states.

“Borrow Cheap, Buy High? Determinants of Leverage and Pricing in Buyouts”  with Tim Jenkinson, Per Strömberg, and Michael Weisbach, Journal of Finance 68:6, December 2013, pp. 2223-2267 (Lead Article)

Abstract: This paper provides an empirical analysis of the financial structure of large buyouts. We collect detailed information on the financing of 1157 worldwide private equity deals from 1980 to 2008. Buyout leverage is cross-sectionally unrelated to the leverage of matched public firms, and is largely driven by factors other than what explains leverage in public firms. In particular, the economy-wide cost of borrowing is the main driver of both the quantity and the composition of debt in these buyouts. Credit conditions also have a strong effect on prices paid in buyouts, even after controlling for prices of equivalent public market companies. Finally, the use of high leverage in transactions negatively affects fund performance, controlling for fund vintage and other relevant characteristics. The results are consistent with the view that the availability of financing impacts booms and busts in the private equity market, and that agency problems between private equity funds and their investors can affect buyout capital structures.

“Wall Street occupations” with Philip Bond (a previous version of this paper was circulated under the title “Investment banking careers”) , forthcoming, Journal of Finance

Abstract: Many finance jobs entail the risk of large losses, together with hard-to-monitor effort. We analyze the equilibrium consequences of these features in a model with optimal dynamic contracting. We show that finance jobs feature high compensation, up-or-out promotion and long work hours, while giving strictly more utility to employees than other jobs. Moral hazard problems in finance are exacerbated in booms, even though pay increases. Employees whose talent would be more valuable elsewhere can be lured into high-paying finance jobs, while the most talented employees might be unable to land these jobs because they are "too hard to manage."

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Other Articles

“Banksystemet behöver en börs för kreditinstrument” Dagens Industri, Friday Oct. 3, 2008
“Regulate providers of debt capital to get to the problem's root” Financial Times, May 17 2010
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Working Papers

“Informational Black Holes in Auctions” with Igor Makarov.

Abstract: A central role for financial markets is to assess whether new projects are worth pursuing or not. We extend standard auction theory to capture this role by studying new venture financing. Paradoxically, when the information generated in the auction is valuable for making real investment decisions, the informational efficiency of the market is destroyed. To add to the paradox, as the number of market participants with useful information increases a growing share of them fall into an ``informational black hole,'' making markets even less efficient. Contrary to the predictions of standard auction theory, social surplus and seller revenues can be decreasing in the number of bidders, the linkage principle of Milgrom and Weber (1982) may not hold, collusion among investors may be beneficial for the seller, and the revenue-ranking of standard auction formats can be reversed.

 

“European Venture Capital: Myths and Facts” with Milan Martinovic.

Abstract: We examine the determinants of success in venture capital transactions using the largest deal-level data set to date, with special emphasis on comparing European to US transactions.  Using survival analysis, we show that for both regions the probability of exit via initial public offering (IPO) has gone down significantly over the last decade, while the time to IPO has gone up – in contrast, the probability of exit via trade sales and the average time to trade sales do not change much over time. Contrary to perceived wisdom, there is no difference in the likelihood or profitability of IPOs between European and US deals from the same vintage year. However, European trade sales are less likely and less profitable than US trade sales. Venture success has the same determinants in both Europe and US, with more experienced entrepreneurs and venture capitalists being associated with higher success.  The fact that repeat or ‘serial’ entrepreneurs are less common in Europe and that European VCs lag US VCs in terms of experience completely explains any difference in performance between Europe and the US. Also, contrary to perceived wisdom, we find no evidence of a stigma of failure for entrepreneurs in Europe.

 

 

“Alpha and Beta of Buyout Deals: A Jump CAPM for Long-term Illiquid Investments” with Morten Sorensen and Per Stromberg.

 

“Bundling, Rationing, and Dispersion Strategies in Private and Common Value Auctions”

Abstract: I study optimal selling strategies by a multi-product seller who is confined to using a standard auction format but has leeway in bundling products and choosing aggregate and individual quantities offered to buyers. I show how decisions of bundling, rationing, and dispersing the allocation depend on whether the product is of private or common value, how high demand is relative to supply, and what auction mechanism the seller uses.

 

“A Theory of the Evolution of Derivatives Markets”

Abstract: This paper develops a theory of the opening and dynamic development of a futures market with competing exchanges. The optimal contract design involves a trade-off between the hedging potential of a contract and it’s degree of substitution with competing contracts. As design costs go down slowly, more exchanges enter, but if costs go down fast or reach zero, markets consolidate (fewer number of exchanges). I develop implications for how the hedging potential and cross-correlation between contracts develop over time. I extend the model to a case where demand is uncertain before trade has been observed, and perform comparative statics on the social efficiency of market opening. For markets with equivalent expected surplus, the propensity of markets to open are negatively related to the probability of further entry and the ex ante uncertainty, and positively related to the time lag between innovations.

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