Distressed private equity fund managers are most likely to consistently deliver strong performance in multiple funds, compared to other managers in the asset class, according to Preqin.
The data firm found managers of distressed debt, special situation strategies, and turnaround strategies that performed in the top quartile in the past went on to raise another successful fund.
Nearly three-quarters of distressed private equity funds that performed above the median raised another successful fund in the future.
Specifically, some 46% of distressed funds scoring in the top quartile in performance went on to have successor funds also ranking in the top quartile.
On the other hand, only 61% of overall private equity funds in the top half of performance were able to continue their success, the report said.
“For distressed private equity funds in particular, the performance of the predecessor vehicle is greatly indicative of the performance of the successor fund in terms of quartile ranking,” Preqin said.
However, distressed strategies that ranked in the lower quartiles were less likely to raise successor funds in the top quartile than all other private equity funds, the report said.
According to Preqin’s data, just 15% of distressed strategy managers in the third-quartile and 6% in the bottom-quartile were likely to raise top-performing funds going forward.
Other private equity strategies ranked in the bottom half in performance did a little better, with 33% moving on to raise a top-quartile successor fund.
Though investors shouldn’t rely completely on track records as a guarantee of future returns, Preqin noted it is important to take into the relationship between predecessor and successor funds in performance.
“Assessing how well a fund will perform is a continuing challenge for institutional investors and a strong track record is one of the most important factors that investors take into account when considering making new commitment to the private equity asset class,” the report said.
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