Private Equity Performance as an Indicator of Success in Asia

by Ryan Soon

  • 09 May 2018
  • PE

A Preqin investor survey in December 2017 revealed that 62% of LPs cited a lack of team track record as one of the factors that resulted in the removal of a private equity fund from their screening process. This suggests that LPs are more comfortable investing with managers that have a proven record, and demonstrates the importance of strong performance credentials. Although past performance is no guarantee of future success, investors are placing growing importance on transparent fund manager track records, as analyzing a GP’s past performance has become an essential part of their investment due diligence process.

Using Preqin’s online platform, we can analyze fund quartile rankings of over 450 Asia-focused private equity vehicles, revealing the relationship between fund manager track records and successor fund performance. Some key findings of our analysis of Asia-focused private equity vehicles include:

  • The majority (56%) of top-quartile Asia-focused funds had their successor vehicles generate returns above the median benchmark, of which 27% ranked as top quartile.
  • Just 17% of funds in the top quartile were followed up by GPs with a bottom-quartile fund.
  • Fifty-nine percent of GPs managing a fund in the second quartile went on to outperform the median benchmark with their next offering.
  • Fifty-four percent of firms with bottom-quartile funds were unable to achieve above-median performance with their successive fund.
  • Twenty-two percent of these bottom-quartile funds, however, were followed up by GPs with a top-quartile fund, showing that a positive turnaround in performance is possible.

The Asian private equity market may see more competition among fund managers, along with further division between top performing GPs and average performing firms. A GP’s track record is one of the most important considerations for investors to determine the top and bottom performing fund managers. As investors are looking to Asia-focused funds for diverse investment opportunities, they are drawn to more established fund managers and firms with a proven track record, a key determinant when LPs evaluate investment opportunities and consider how their potential investment may perform. 

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