Preqin Investor Network: Fund Selection – Investment Consultants’ Survey – June 2014

by Laura Duce

  • 19 Jun 2014
  • PE
  • HF
  • RE
  • INF

Preqin Investor Network’s Blog takes a closer look at the industry from the institutional investor’s perspective.

With a record 2,200 private equity, private real estate and private infrastructure funds currently seeking capital commitments, investment professionals face considerable challenges when actively navigating the marketplace for the best fund opportunities. Detailed assessment of fund managers’ past performance track records understandably plays an integral part in an investment professional’s fund selection process, demonstrated by just how quickly top-tier fund managers’ vehicles can become oversubscribed. However, should investors widen their searches by delving deeper into the track record of the investment teams behind the funds raising capital?

Investment consultants, like placement agents, play a significant role in assisting with the flow of capital in the private equity market, and their expertise and experience allows them to provide useful guidance to investment professionals on how to seek out the best fund opportunities. To complement Preqin Investor Network’s online accredited investor service, the Network surveyed 40 of the world’s leading investment consultants to determine what they believe to be the key indicators that suggest a fund will successfully fundraise, and moreover, go on to generate the best returns.

Similarly to placement agents, investment consultants told Preqin Investor Network that performance track record at firm level should be an important consideration in an investment professional’s fund selection process. However, an investment team’s successful track record is viewed to be significantly more relevant when it comes to both a fund meeting its fundraising target and generating high returns. Investment professionals should pay greater attention to the individuals and investment teams with successful track records to seek out further suitable fund opportunities, beyond those funds being raised by established top-tier fund managers with clear firm track records.

Unlike placement agents, investment consultants cited that poor performance track record at a firm level is a marginally more important warning signal than that at a team level with regards to a fund being unable to reach its fundraising target (with 83% and 80% stating these as key, respectively). The survey results suggest that although a successful performance track record at team level is more important for a fund to successfully fundraise and go on to generate high returns, this success becomes irrelevant if the firm’s track record is particularly poor, as the fund’s target may be unattainable in the first place.

Find out more about how investment consultants determine the best private equity, private real estate and private infrastructure funds, along with additional interim performance analysis to help investors select only the best vehicles in market, in Preqin Investor Network’s forthcoming Private Equity Fund Selection Report, available from 8th July 2014.

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