Research conducted by Preqin for the 2012 private equity Performance Monitor publication shows that the total assets under management held by private equity funds worldwide has reached $3 trillion for the first time, but that a wide gulf exists between the performance of top and bottom quartile funds.
The figure is calculated using unrealized portfolio value and the ‘dry powder’ (uncalled capital) available to private equity funds across the whole scope of the asset class.
Industry assets under management increased by 9 percent from December 2010 to December 2011.
The strongest period of growth of private equity industry AUM occurred in 2004 – 2007, when assets expanded by 136 percent, driven by the emergence of mega buyout funds.
However, the gap between top and bottom quartile private equity funds’ performance has increased over recent quarters. Thirty-six percent of fund managers with a top quartile fund go on to manage a top quartile successor fund, and 62 percent overall outperform the median benchmark with their next fund.
Thirty-six percent of bottom quartile managers remain in that quartile with their next offering, while 56 percent underperform the median benchmark.
“The sustained growth of industry assets highlights the fact that private equity continues to be attractive to institutional investors that are willing to forgo liquidity in return for outperformance,” commented Bronwyn Williams, manager of Performance Data at Preqin.
“When examining the 10-year performance of the asset class it is clear that private equity can generate superior returns; however, our analysis also highlights the wide gulf between the performance of top and bottom quartile funds. Consequently the key issue for investors remains identifying, researching and selecting the best potential fund managers for their portfolios.”
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