Conventional wisdom in private equity has often gone like this: Performance persists across funds for the same partnership.
But the view over the last years is mixed. One 2014 study found that post-2000, there was “little evidence of persistence for buyout funds, except at the lower end of the performance distribution.”
The question was addressed again recently at A Roundtable Sponsored by the Notre Dame Institute for Global Investing and the Private Capital Research Institute. Here a group of limited partners, academics and general partners met to share their thoughts on performance and persistence in private equity investments.
Their conclusion: “the once robust persistence of performance across buyout funds has weakened, along the historical outperformance of private equity relative to the private markets.”
But what does this finding mean in terms of various important inputs, factors like: approaches employed in selecting fund managers, factors influencing performance in the current environment, industry trends and performance benchmarks, comparisons between venture and buyout investing, alignment issues, and the importance of culture?
I asked Dr. Josh Lerner, Chair of the Entrepreneurial Management Unit and the Schiff Professor of Investment Banking at Harvard Business School. He also serves as Director of the Private Capital Research Institute, a nonprofit devoted to encouraging access to data and research about venture capital and private equity.
More honors: Josh is Vice-chair of the World Economic Forum’s Global Agenda Council on the Future of Investing and was named one of the 100 most influential people in private equity over the past decade and one of the ten most influential academics in the institutional investing world.