Surprisingly, it was an eye-opening experience. I say this because I had been under the impression that only one in four firms could justifiably claim a slot in the top quartile for fund performance.
Turns out, this view was hopelessly naïve. Because there are several reputable sources for raw data, and a panoply of options for slicing and dicing said data, it’s quite possible for the same fund to achieve a mediocre ranking by one metric and a more appealing one by another.
Now, I’m not talking Extreme Makeover-type improvements. Those at the bottom 10% aren’t going soar to the top 1 percent. But by focusing on the most flattering metric –- be it public market comparables, sector-specific rankings, or a particular time period within the fund lifecycle –- it is possible for more than 50% of funds to make an arguable claim to be “top quartile,” according to one panelist’s recollection of a study on that question several years ago.
So what’s the best way to give your LPs the impression that you’re knocking the cover off the ball? The following slideshow presents a few ideas, some of which may help to explain why it seems like more than one in four managers I speak to can proudly claim a spot in the coveted top quartile.
Who says top quartile has to refer to the entire lifecycle of the fund? If you had a great three-year-run where you outperformed your peers by a big margin, focus on that. Granted, the strategy won’t work if your portfolio fell apart two years after posting triple-digit returns. But if valuations are holding up reasonably (albeit not markedly superior to your peers), why not focus on the period when your rivals were eating your dust?