Research from Private Equity Intelligence’s 2006 Performance Monitor reveals LP investments in private equity funds have beaten the stock market by 24% over 10 years. Historically, the biggest buyout funds in the US and Europe have out-performed the average fund by a wide margin. With mega funds above $5bn now accounting for 55% of the market, the performance of these large funds is vital for investors.
Other sectors that have delivered excellent performance and earned a place in investors’ portfolios include mezzanine, distressed debt, real estate, natural resources and secondaries. Venture remains difficult, according to the report, but even here the best funds have delivered good returns for astute investors.
The report highlights two factors paramount for investors in private equity: the importance of manager selection and also being able to spot the difference between a top quartile and a bottom quartile fund. The difference in returns between a top quartile and bottom quartile fund is huge and can mean a 25% difference per year or more.
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