2018 Performance Monitor: First-Time Private Capital Fund Managers

by Preqin

  • 17 Sep 2018
  • PE
  • VC
  • HF
  • PD
  • RE
  • INF
  • NR

This is the fourth blog in the series following the launch of The 2018 Preqin Alternative Assets Performance Monitor. Here, we provide insight on the performance of first-time private capital funds and how these managers can add value to investors’ portfolios.

In a fiercely competitive fundraising environment, first-time managers have commonly faced challenges securing commitments from institutional investors largely due to the attractive characteristics exhibited by successful closed-end investment vehicles. Across all alternative asset classes, a demonstrable strong firm and team track record have often featured among the most important factors that investors assess when selecting a new fund. For investors that can spot the best teams, there is the potential for favourable returns.

Preqin data shows that first-time private capital fund managers typically outperform non-first-time funds: first-time funds have higher median net IRRs than non-first-time funds across 13 of the 16 vintage years going back to 2000. These vehicles have surpassed the net IRRs of all other funds by at least three percentage points for 2000, 2002-2004 and 2010-2011 vintage years. This outperformance is particularly apparent in quartile rankings: 32% of first-time funds achieved top-quartile performance (all vintages combined), compared with 24% for all other funds.

Fund selection for first-time fund managers remains crucial as the difference in the performance of top- and bottom-quartile first-time funds is sizeable. Between 2000 and 2015 vintages, the difference in median net IRRs between top- and bottom-quartile boundaries was at least 12 percentage points for most vintage years.

The PrEQIn Index tracks the average returns achieved by investors in their portfolios, based on the total amount of capital invested in these asset classes (weighted by the size of each fund, and considering the timing of capital calls and distributions). First-time private capital funds have generally underperformed the public market since December 2010, as seen in the chart above. However, in recent years, the PrEQIn Private Equity Index and PrEQIn Infrastructure Index have performed particularly well against the public market, achieving 202.7 and 200.6 index points respectively in December 2016 for example (vs. 202.4 for the S&P 500 TR Index).

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