Strong Performance of First-Time Asia-Focused Private Capital Funds

by Ryan Soon

  • 19 Sep 2018
  • PE
  • VC
  • PD
  • RE
  • INF
  • NR

Preqin Investor Outlook: Alternative Assets, H1 2018 revealed that a firm’s successful track record is an important consideration for institutional investors selecting new funds for investment. As a result, first-time fund managers lacking a demonstrable track record can face challenges securing investor commitments. However, do a fund manager’s experience and performance always go hand in hand? According to Preqin’s performance data, first-time private capital vehicles often not only deliver returns comparable to established fund managers, but several times they outperformed funds managed by more experienced GPs. As shown in the chart below, first-time funds focused on Asia have posted higher median net IRRs than non-first-time vehicles among vintage years 2004-2007 and 2010-2013.

Using Preqin’s online platform, we examined net IRRs of over 430 Asia-focused private capital vehicles of vintages 2004-2015, and compared the returns of first-time funds (FTFs) and non-first-time funds (non-FTFs). Some key findings of our analysis include:

  • Private equity real estate and growth funds achieved the highest median net IRRs for FTFs and non-FTFs respectively.
  • FTFs achieved double-digit returns in all years except for vintages 2008-2009, while non-FTFs experienced double-digit returns only after vintage 2009.
  • The difference in median net IRRs between top and bottom quartile boundaries was 13.3% and 11.2% for FTFs and non-FTFs respectively.
  • Greater China-headquartered firms dominate the top 10 performing FTFs, and firms in North Asia and Greater China make up the majority of the top 10 non-FTFs.
  • Growth vehicles make up half of the top 10 performing FTFs, while growth and infrastructure funds constitute the majority of the top 10 performing non-FTFs.

 Despite the challenges faced by first-time fund managers in terms of marketing to potential investors for commitments, the historical performance of FTFs has shown that investors have had success investing in these new managers. Preqin’s online platform currently tracks more than 1,600 investors that are either investing in or considering committing to first-time Asia-focused private capital funds. Looking forward, we can expect to see more investors committing to newly established managers, provided that FTFs can continue to prove that they can reward investors with higher returns.

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