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Relationship between Predecessor and Successor Fund Quartiles

by Bronwyn Williams

  • 25 Mar 2011
  • PE

Before committing to a new private equity fund, a key component of an investor’s due diligence is a thorough review of the fund manager’s track record. Many investors see analysis of a fund manager’s past performance as a useful factor in gaining an indication of likely future performance.

Using performance data that ranks funds according to their vintage, strategy and regional focus, we have looked at the relationship between the quartiles of predecessor and successor funds raised by the same manager. The data shows that 39% of private equity fund managers with a top quartile fund have gone on to raise another top quartile successor fund, and 69% of top quartile managers’ successor funds beat the median benchmark. Similarly, almost 60% of managers of a second quartile fund have gone on to produce a follow-on fund performing higher than the median benchmark. In contrast, just 37% of GPs with a fund ranked in the bottom quartile have their next fund ranked above the median benchmark, with 63% of bottom quartile fund managers producing a successor fund that is ranked in the third or fourth quartile.

While any attempt to use past performance data to predict future performance should be approached with caution, it is clear that there is a correlation between the relative performance of predecessor and successor funds raised by the same manager.

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