Does Success Breed Success? An Examination of Private Equity Funds Across Global Regions – July 2014

by Claire McNeil

  • 31 Jul 2014
  • PE

Using performance data for more than 3,000 funds from Preqin’s Performance Analyst, we look at the quartile rankings of predecessor and successor funds. Quartile rankings are calculated using an average of the ranking of the IRR and multiple of each fund, within the fund’s respective benchmark. 

Looking at the statistics for all private equity, 35% of top quartile funds go on to have a top quartile successor fund, compared to 16% of bottom quartile predecessor funds. On the other hand, only 15% of fund managers with a top quartile fund go on to have their next fund ranked as bottom quartile, whereas 35% of fund managers with a bottom quartile fund go on to have their next fund ranked as bottom quartile. The greatest proportions of successor funds for each quartile ranking have predecessors of the same quartile (close to a third for each quartile). 

The results are similar when broken down by regional focus, though this highlights some disparities between the different geographies. Thirty-six percent of top quartile funds with managers based in North America are succeeded by first quartile funds; this is a greater proportion than in both Europe (31%) and Asia & Rest of World (27%). Fourteen percent of first quartile funds with North America-based fund managers are succeeded by a fourth quartile fund, compared with 16% for Europe and 19% for Asia & Rest of World. 

Hence, we can conclude that the performance of a predecessor private equity fund is a good indicator of the performance of its successor; first quartile funds are more likely to be succeeded by a first quartile fund, across all regional focuses. However, the quartile ranking of a fund does not automatically indicate that its successor will perform the same. It is also worth noting that the number of fourth quartile funds with successor funds is far smaller than the number for the other quartiles. 

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