Effects of Past Performance on Future Performance in Private Equity - September 2013

by Vasilisa Starodubtseva

  • 02 Sep 2013
  • PE

The 2013 Preqin Private Equity Performance Monitor offers access to both transparent and accurate returns data on an individual fund-by-fund basis for over 6,300 private equity vehicles, and can facilitate in attempting to identify and select the highest performing fund for investors’ portfolios.

The Performance Monitor examines the relationship between predecessor and successor fund quartiles, in order to help select funds that are likely to perform well in the future. Taking into account the variety of investment opportunities available within the private equity sphere, selecting future successful funds is a challenging task.  Despite the fact that past successful performance will not guarantee future success, there is significant evidence that implies managers of higher ranked quartile funds are more likely to produce a successor fund that is also ranked in the top quartiles. Preqin’s data shows that over a third of fund managers with a top quartile fund go on to manage a successor fund in the top quartile, compared to 27% of second quartile predecessor funds, 19% of third quartile predecessor funds and just 16% of bottom quartile predecessor funds. In contrast, 35% of fund managers with bottom quartile predecessor funds go on to manage a bottom quartile successor fund. In comparison, only 14% of fund managers with a top quartile fund going on to manage a successor fund in the bottom quartile.

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