Private Equity and VC

Private Equity - It's All About Manager Selection

More than simply due diligence…..

When it comes to Private Equity, it's often said that Manager Selection is more important than the original Asset Allocation decision. As an asset class, Private Equity is renowned for the dispersion of returns between top quartile managers and bottom quartile managers.

The articles below cover some of the key issues around Private Equity Manager Selection: eVestment shows how a deeper dive into the data can pay handsome dividends; Carlyle considers the question of skill versus luck; other papers examine a variety of related issues.

Manhattan station private equity managers

Enhancing Private Equity Manager Selection with Deeper Data (eVestment)
This eVestment paper explores the research and data behind why top quartile returns are in the hands of the investor. It presents advice and insights from industry practitioners on how to leverage data to enhance manager selection.

Skill vs. Luck in Private Equity Excess Returns (The Carlyle Group, June 2017)
This research by the Carlyle Group examines the performance of LPs' investment portfolios, focusing specifically on the importance of a highly disciplined due diligence process in fund selection.

Responsible Investment in Private Equity Survey (Capital Dynamics, 2017)
This Capital Dynamics report is based on a survey of PE managers. It indicates a market shift towards proactively adopting ESG as a means of increasing returns, with most respondents planning on incorporating it into their strategies.

Private Equity Salaries: Global Compensation Surveys (2017)
This selection of private equity salary surveys provide some interesting and helpful insights. Authors include Heidrick & Struggles, Johnson Associates, Kea Consultants, and others.

Performance Attribution in Private Equity: A case study of two pension funds
A model for PE which breaks down the PE equity performance into base factor and four different premiums has been developed by the authors of this paper. They use the PE portfolio of two North American pension funds to illustrate it better.

Investor Scale and Performance in Private Equity Investments (Rotman ICPM, 2014)
Larger PE investors have superior due diligence and ability to bridge information asymmetries in PE, this paper argues. Such investors earn substantially greater returns than plans with small holdings in both the 1990s and the 2000s.

Co-investments of sovereign wealth funds in private equity (2016)
Direct investments are the preferred vehicle for large institutional investors to have control over their portfolio investments. This paper examines the deal structure of direct investments by sovereign wealth funds in PE transactions.

Key Due Diligence Considerations for Private Equity Investors (Preqin, 2014)
This 12-page report discusses a number of PE-related issues: how to identify whether a fund will meet its fundraising target; how to select outperforming funds; the qualities that investment consultants look for in a PE fund.

Adverse Selection and the Performance of Private Equity Co-Investments (2017)
Investors increasingly look for PE managers to provide opportunities for co-investing outside the fund structure. This paper uses a large sample of buyout and VC co-investments to test how such deals compare with the other fund investments.

Global Alternatives Survey 2017: Top manager rankings (Willis Towers Watson)
This 95-page report presents the findings of the 2017 Global Alternatives Survey by Willis Towers Watson. An important read on recent trends and activities in different alternative asset classes.

Private Credit Strategies: An Introduction (Cambridge Associates, 2017)
This paper by Cambridge Associates serves as an introduction to the world of private credit. It helpfully defines private credit, explores capital preservation strategies, return-maximising strategies, and more.

Safeguarding Private Equity Firms: 6 key risk management strategies (KPMG, 2017)
This KPMG report explains what investors can do to protect the value of their portfolio companies from a variety of external risks. The top risk management issues include technology risk, third-party risk, and cyber risk.

When Secondaries Should Come First (Cambridge Associates, 2017)
This research by Cambridge Associates reviews the primary considerations for implementing private investments through secondary funds rather than the traditional Fund of Funds or direct funds route.

The Shrinking Public Market and Why it Matters (Pantheon, June 2017)
Why has the number of publicly listed companies in the U.S. roughly halved since 1996? Why is this trend likely to persist? This paper by Cullen Wilson and Brian Buenneke of Pantheon explores further.

Squaring Venture Capital Valuations with Reality (2017)
The authors of this paper have developed a financial model to estimate the fair value of venture capital-backed companies and of each type of security these companies issue.

How Do Private Equity Investments Perform Compared to Public Equity?
In this paper, Harris, Jenkinson, and Kaplan use data from nearly 300 institutional investors to study over 1,800 North American buyout and VC funds. They examine the funds' performance to listed equities.

Private Asset Class Roles and Benchmarks (CalPERS, 2017)
This CalPERS presentation discusses benchmark selection for private asset classes. The authors also review the asset liability management timeline.

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