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Real Estate Performance - Relationship Between Predecessor and Successor Fund Quartiles – July 2014

by Madeleine Stretton

  • 09 Jul 2014
  • RE

For institutional investors, being able to source the top performing funds is a continuing challenge, and there are several factors that investors will take into account when searching for new funds. In particular, a strong track record is one of the key factors that investors look at when considering making commitments to the asset class.

Preqin’s Performance Analyst currently tracks performance data for 1,164 real estate funds. Using this data, Preqin can analyze the relationship between past and current performance, providing an indication of how well a fund manager will perform going forward. Using the quartile ranking of each manager from fund to fund, which is based on both net IRR and net multiple, the relationship between predecessor and successor fund performance quartiles can be determined.

Forty-one percent of fund managers that have previously raised a top quartile fund will go on to have their successor fund also ranked in the top quartile. Overall, the majority (73%) of top quartile fund managers will raise an above-median performing fund going forward. Conversely, only 11% of top quartile managers will go on to have their successor fund ranked in the bottom quartile.
Looking at the other end of the scale, 52% of managers that have previously raised a bottom quartile fund will also go on to raise a bottom quartile fund. However, a minority of fund managers are able to turn around poor past performance, with 11% of bottom quartile managers going on to raise a top quartile fund.

Preqin’s Performance Analyst reveals there is an important relationship between the quartile rankings of predecessor and successor funds. Although it is important to note that past performance is no guarantee of future returns, there is a strong indication that if a fund manager has performed well in the past, it will continue to perform well in the future. Consequently, institutional investors should continue to use track record as a key factor in the fund manager selection process.

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