Private Equity Performance – Relationship between Predecessor and Successor Fund Quartiles

by Emma Underwood

  • 29 Nov 2013
  • PE

Private equity fund selection can be a challenging task for investors. With over 2,000 funds currently seeking capital, choosing a fund that will generate the greatest returns requires much deliberation from LPs, which makes accessing data on manager track record a highly valuable tool.

Using performance data for over 6,500 private equity funds, Preqin can determine whether past performance provides an indication as to how a fund manager may perform in the future. Preqin’s Performance Analyst module assesses the quartile ranking of each manager from fund to fund, which is based on both net IRR and net multiple, and the relationship between predecessor and successor fund performance quartiles.

Thirty-four percent of GPs with a top quartile fund go on to have their next fund also ranked in the top quartile, while overall, 65% of top quartile fund managers go on to achieve above-median performance with their next fund. In comparison, just 16% of bottom quartile fund managers go on to achieve top quartile performance with their successor fund.

At the other end of the scale, 35% of managers with a bottom quartile fund go on to have their next fund also ranked in the bottom quartile, and overall, 61% fail to surpass the median benchmark with their next fund.

These figures indicate the significant relationship between the performance quartile rankings of successive funds. While it is important to note that past performance is no guarantee of future returns, with data pointing towards repeat success, track record is a very important consideration for investors and should thus constitute a key part of their due diligence.

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