Expert networks are information service providers that can provide support for knowledge generation in the context of investment projects by facilitating individually tailored expert discussions with selected industry experts. The customers of expert networks include, in particular, private equity funds, hedge funds, consulting firms and industrial companies.

The number of expert networks increased significantly from one to 45 companies between 1998 and 2009, which indicates an extremely dynamic development of demand in this market. Nevertheless, expert networks are still relatively seldom used outside the U.S., which is due in particular to the fact that the possible uses of expert (networks) in the context of investment decisions are still largely unknown.

The purpose of this article is to explain the role of expert networks in the context of private equity investments. After a brief overview of the historical development of expert networks, the business model and functioning of this industry will be presented. Subsequently, the potential added value of experts will be explained on the basis of theoretical and empirical findings. The focus is on two theoretical approaches based on the reduction of information asymmetries and the resource endowment of a company, respectively.

Emergence and development of expert networks

Expert networks emerged in the United States with the founding of the Gerson Lehrman Group (GLG) in 1998. GLG, the largest expert network to date, was initially active in specific sectors such as healthcare or the biotechnology industry. Within a relatively short period of time, however, the field of application expanded significantly after hedge fund managers in particular increasingly used GLG to get in touch with political decision-makers and to get a better feel for long-term development trends.