Predicting Future Performance

Every private equity firm brags in public about how it’s funds are top-quartile, but it’s often a different story once they get behind closed doors with prospective limited partners. Some firms can legitimately maintain their public face, but the vast majority plead for why things will be different the next time around.

Unfortunately, it appears that past performance is a fairly strong indicator of future performance. Private Equity Intelligence just completed a study of 3,400 funds managed by 1,159 firms, and found that GPs managing a top-quartile fund has a 43.3% probability of having its next fund also land in the top quartile – and just a 10.8% chance that its follow-on will be bottom-quartile.

Conversely, GPs managing bottom-quartile funds have a 35.1% chance of remaining in the basement. Moreover, GPs managing bottom-quartile funds have a 59.5% chance of having their next fund under-perform median benchmarks, with just a 16.1% likelihood that it will reach top-quartile.

For more complete data, download Preqin’s latest Spotlight report here — Preqin.pdf — and flip to page 4.