Gap Between Top And Bottom Performing Private Equity Funds Widens; Comparison By Vintage Year

Two interesting charts I found today highlight the dramatic gap between top and bottom quartile fund returns.

They also detail what might best be called the “V Curve” in recent fund performance (no longer the J Curve).

Both are published by Pregin in the firm’s Private Equity Spotlight for August.


The first (above) shows median IRRs for private equity vintage years with mid-point values for top quartile funds and bottom quartile funds. For instance, the mid point IRR for top quartile 2008 funds is 24.1% while the mid point for bottom quartile funds is -16.8%, says Preqin. The overall median for the vintage year is between 0 and 10%.

What’s fascinating about the data is the trends apparent for 2001, 2002 and 2003 funds. Their relatively strong performance makes me want to see a breakout of the data by fund type. It would be telling.

Also unsettling is the observation that the gap between the top and bottom is getting larger. The distance between mid point performance for 2008 top funds and poorly performing funds is roughly 40 percentage points. The same gap in 2003 is closer to 35. This will not make fundraising for the vast majority any easier.

Preqin’s second graph (below) is more straightforward. It plots one-year IRRs for venture, buyout and private equity as a whole to show the impact of the recent global financial catastrophe. The data shows fund performance hit a low point in March 2009, with a recovery since then returning values close to those of late 2007.

Of course no one knows what impact the recent financial turmoil in the United States and the continuing debt crisis in Europe will have on future fund returns. I suppose it is fair to say the “V” may begin to look like a “W.”