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Relationship between Predecessor and Successor Fund Quartile

by Etienne Paresys

  • 21 Aug 2009
  • PE

Previous track record is known to be one of the most important factors taken into account by investors when selecting potential funds to invest in. In order to verify how important track record is, Preqin analysed the relationship between quartile rankings for predecessor and successor funds.

The results demonstrate that investors are correct to pay attention to track record as it shows a strong correlation between the performance of a fund and the success of its predecessor. 43% of GPs that manage a top quartile fund also have their next fund ranked in the top quartile, and a total of 68% beat the median benchmark. 60% of managers with a second quartile fund go on to have their next fund beat the median benchmark, while this figure drops to 46% for managers of third quartile funds and 39% for managers of fourth quartile funds. Just 13% of managers with a first or second quartile fund fall into the bottom quartile with their successor funds, but this rises to 24% for managers of third quartile funds and 37% for managers of fourth quartile funds.

The evidence is clear: managers of top-tier funds and far more likely to have their next funds also appearing in the top tier than other lesser performing managers. Track record is clearly an important factor, and will be especially closely scrutinised in the current environment, although it is important to recognise that it is still possible for the best managers to have poorly performing follow-on vehicles, and each new investment opportunity should be judged on its individual merits.

For more information on private equity fund performance, please see how our online Performance Analyst product can help you. Alternatively, similar data analysis can be found in the 2009 Preqin Private Equity Performance Monitor.

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