Although past performance is no guarantee of future returns, an examination of the relationship between predecessor and successor fund quartiles reveals significant correlation. Managers of top quartile funds have historically had their next funds also appearing in the top quartile more often than other lesser performing managers.
39% of managers with a top quartile fund have their follow on funds also ranked in the top quartile, and nearly 70% of these managers beat the median benchmark with their next fund. Only 11% of initially top quartile fund managers saw their next fund’s performance fall into the bottom quartile.
The trend is reflected for the worst performing managers. 38% of fund managers with bottom quartile ranked funds saw their next fund ranked in the same quartile, while just 15% of managers with bottom quartile funds were able to subsequently produce top ranking funds.
The track record of a fund manager is obviously an important factor for investors evaluating new investment opportunities. Not all fund managers can be ranked ‘top quartile’ and access to comprehensive benchmarks and a transparent source of performance data is essential to accurately compare the performance of private equity funds and fund managers.
For more information about private equity performance, please see how Preqin’s Performance Analyst can assist you.