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December 2022 - January 2023
AAM Magazine
Dec 2022 - Jan 2023
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PE Panorama: A conspicuous absence

Data provider Preqin’s breakdown of private capital performance is the latest must-read report for private equity investors. It includes a slew of data from 2001 to the third quarter of 2018, including assets and rates of return.

But it’s the league tables for the most consistent top-performing fund managers across strategies that is likely to prove most interesting – and surprising – for investors in the asset class.

Let’s start with the most eye-catching and highest-rolling sub-asset class, the large buyout firms. Preqin lists 24 of the top buyout firms worldwide, based on the consistency with which their funds delivered top-quartile performance. Here’s the surprise. Not a single leading name-brand Wall Street private equity firm appears on the list. No Carlyle. No KKR. No Blackstone. TPG does feature at number 14 among the top-performing growth fund managers, but that’s not quite the same thing.

Vista Equity Partners, TA Associates, and Hellman & Friedman might just rank close to these major brands in recognition terms, but I doubt anyone feels they have quite the same visibility. Incidentally, Vista Equity Partners was recently rated by Xtract Research as the most aggressive private equity deal sponsor.

Meanwhile, only ten of the 24 top buyout fund managers in the Preqin report are US firms. And the number one, Veritas Capital is the only US firm in the top five. Canada’s Brookfield Capital Partners is in second place, Dutch firm Main Capital Partners is third, South Korea’s MBK Partners is fourth, and Switzerland’s Ufenau Capital Partners is fifth. Arguably, then, an institutional investor looking to invest into buyout funds ought to be looking outside the US first.

There’s a similar absence of household names in the list of the 32 consistent top-performing venture capital fund managers. Yes, Benchmark is there, and Sequoia, and Matrix, and Battery, and GGV. But where’s Kleiner Perkins? Where’s DFG? Where’s NEA? Where’s Redpoint? Where’s Lightspeed?

Private capital investing from the limited partner point of view is absolutely about getting into the top quartile, or even the top decile, of fund performance. Consistent ability to deliver this should be the prime criterion for selecting and investing in a fund. Yet the major US firms continue to trade on their name, and target ever larger vehicles, on the basis of their brand and their track record.

The Preqin report is one more reminder that investors need to look behind the glitzy label and grill their potential general partners about what they are actually doing to back up their reputation.