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Private Equity Performance – The Relationship Between Past Performance and Future Fundraising

by Madeleine Stretton

  • 27 Aug 2014
  • PE

The number of funds successfully raising capital and reaching a final close has been steadily increasing within the private equity universe over recent years. In 2010, 972 private equity funds reached a final close compared to 1,131 in 2013. With more funds in the market comes increased choice for LPs, and consequently, institutional investors may be looking at past performance as an indicator of how fund managers may perform going forward in order to aid their investment selections.

Preqin’s Performance Analyst online service currently tracks performance data for 7,081 private equity funds, and using this data, Preqin can analyze the impact that the quartile ranking of predecessor funds would have on fund managers’ ability to reach the fundraising target for its successor funds.

Twenty-seven percent of fund managers that have had their predecessor fund ranked in the top quartile go on to surpass their successor fundraising target by at least 25%, whereas only 16% of managers with the same predecessor ranking raised less than 75% of their fundraising target for their successor fund. Conversely, 18% of managers that have previously raised a fund ranked in the bottom quartile went to raise more than 25% above their target, whereas almost a quarter (24%) raised less than 75% of their successor fund target.

Preqin’s Performance Analyst indicates that there is a correlation between past quartile ranking and future fundraising success for managers, suggesting the importance that institutional investors place on past performance when considering where to place their capital going forward.

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