Historically, secondary funds of funds have provided strong returns, with little variation between the performance of the top and bottom quartiles relative to other fund types. Funds with a 1999 vintage have produced the widest range of returns, with the best fund achieving a return of 40% and the worst generating -4% so far. 2004 is another interesting vintage year for secondaries funds, since not only was the vintage a record in terms of the number of funds at the time, but its funds have also produced some of the best returns to date. The IRRs for this vintage are closely clustered together, with the exception of two funds that have generated outstanding IRRs of 47% and 57%.
Recent secondary funds are showing negative returns, partially due to their immaturity, but also as a result of premiums to NAV paid before the crisis for fund interests that are now worth a lot less. The most recent secondaries funds have the potential to produce excellent returns if they can purchase stakes in good funds from motivated sellers at discounts to NAV.
For more information on performance across the private equity industry, please see how our Performance Analyst service can assist you.