This paper extends Lerner and Schoar’s (2004) argument on illiquidity puzzle of private equity funds. We examine the roles that investment illiquidity, along with bounded rationality and rent-seeking behavior, plays in private-equity buyouts. Collectively, investors employ club deals to screen out fund managers who might misuse discretionary rights to engage buyout deals. A club deal is launched by a group of private equity firms that pool their assets together, make a joint bid for a buyout target, and monitor the buyout processes collectively. Thus, this paper aims at clarifying whether or not such discretionary rights improve the choice of buyout target by, as well as the performance of private equity funds. We found that the performance of buyout funds persisted and affected the choice of the club deal as the major monitoring mechanism. This paper contributes to our understandings of investment behavior in private equity buyouts as follows. First, the performance of buyout funds has improved for at least two time periods between 1999 and mid-2007. The phenomenon that fund performance affects the choice of club deals is consistent across a variety of private equity funds, such as buyout, venture, growth, and mezzanine funds. Moreover, risk preference does not affect choice of club deals directly; instead, it has a moderating effect on choice of club deals through its interaction with the location of reference point for risk aversion. Finally, both fund size and fund sequence have U-shaped relations to the choice of club deals, while deal value of buyouts is related positively to the choice of club deals.