Returns from private equity funds consistently outperform major market indices, according to the 2007 Private Equity Performance Monitor.
The report, based on net returns data for over 3,100 private equity funds of all types, showed risk-adjusted returns from private equity fund investments trouncing the FTSE, MSCI and NASDAQ indices over the period Dec 1993 - Dec 2006. Except, it must be noted, during that pesky little tech bubble.
Still, Private Equity Intelligence, which commissioned the report, acknowledges that it’s neither straightforward nor easy to compare a long term, illiquid investment like private equity with listed stocks.
And if you’re thinking about switching from an index tracker to the rarefied world of private equity, be warned: not all buyout funds are created equal. The gap between the best and the rest is around 10 per cent per year between the median and first / third quartiles, and these differences tend to persist over time.
“Track record is a vital consideration…when considering new investments,” the report said. “An analysis of the odds of a firm’s next fund featuring in the top quartile based upon the performance of the firm’s current fund reveals a pattern of the best firms producing consistently strong returns, and the worst performing managers being unlikely to improve.”In other words - or rather, figures - 43 per cent of top quartile managers remain top with their next fund, but only 16 per cent of bottom quartile managers are able to make the jump to the top of the roost.
