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Analysis supports ‘going with a winner’ philosophy

Firms that have top-quartile private equity funds follow them up with another top-quartile fund 39% of the time, according to a new analysis by PitchBook. Top-quarter venture capital funds have a top-quartile successor fund slightly more than one-third (34%) of the time.

When PitchBook executives considered only the second and third funds in a fund family, top-quartile second private equity funds were followed by top-quartile private equity funds 43% of the time. A top-quartile venture capital fund was followed by a similarly performing venture capital fund 55% of the time, according to data as of Sept. 30.

On the flip side, underperforming funds were followed by equally underperforming funds.

Bottom-quartile private equity funds were followed by bottom-quartile successor funds 34% of the time and followed by top-quartile funds 22% of the time. Bottom-quartile venture capital funds had bottom-quartile successor funds 49% of the time and top-quartile follow-on funds 8% of the time.

James Gelfer, PitchBook senior analyst, noted that while two funds could be in the top quartile, actual returns could be very different.

For example, the pooled internal rate of return for a top-quartile fund raised in 2002 had to be at least 26.10%, while a top-quartile 2015 vintage year fund has at least an IRR of 15.78% as of Sept. 30, according to PitchBook data.

Mr. Gelfer said that PitchBook executives found very little "predictive value in the absolute level of returns of funds from one fund to the next."