Past Performance Provides Private Equity Information
Updated: Sep 12, 2022
Past performance of private equity funds may provide some useful information on how they might perform in future, says research by Preqin. It analysis shows more than a third of private equity funds that were in the top quartile for one vintage were also top quartile for the general partners (GPs). Good performance persistence is greatest among small funds and strong and significant among medium-sized funds, but weak among large ones. Bad performance, however, is persistent across all sizes so a manager with a bottom quartile fund is likely to remain bottom quartile with their next fund. This is an important result for private equity investors, especially given that many allocate to large funds run by large managers. The performance disclaimer was right all along, but it can be more useful when looking at the long tail of small and medium-sized funds which make up the bulk of the industry in terms of number of funds.