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Net IRR Dispersion from Benchmark by Fund Type

by Bronwyn Williams

  • 13 Aug 2010
  • PE

Analyzing the percentage point difference of individual fund level IRRs from their respective median IRR benchmarks by fund strategy and vintage year provides an indication of the risk associated with each fund strategy. The more clustered the returns are around the median performance, the less risky the strategy is considered to be. Venture capital and early stage funds are the most risky strategies, with net IRRs widely distributed around the benchmark. Approximately 5% of all early stage and venture capital funds have performed extremely well, beating their median benchmarks by more than 50%. The net IRRs of buyout and real estate funds are also dispersed relatively widely around their benchmarks, though fewer funds outperform them by a very wide margin. Fund of funds returns are clustered around their respective benchmarks, confirming that the diversification they provide typically diminishes risk. With 70% of mezzanine funds posting IRRs within +/- 5% of their median benchmarks, mezzanine also offers a low risk profile to investors.

The data in this analysis was compiled using Preqin’s Performance Analyst. Please click for further information about private equity performance.

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