Manager selection for private equity has historically been more critical to returns relative to other asset classes. The gap between the best- and worst-performing managers is typically wide, and managers that have performed well in the past tend to perform well going forward.
As of the end of March, the spread between the top and bottom quartile’s internal rates of return has been growing among funds with vintage years of 2011 and later. Vintage year 2014 funds saw their top-quartile IRRs step back relative to funds opened in 2013, 2012 and 2011, but bottom-quartile returns dropped off significantly between 2013 and 2014 funds. It should be noted that younger funds will have lower returns in the years following their inception.