Revisiting Private Equity Manager Selection

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Manager selection is a critical component of success in any asset class, but particularly in private equity, where manager return dispersion is meaningfully wider than in public markets. Over time, the factors influencing private equity manager selection have become more complex. Investors should account for these changes but remain focused on key factors with a proven history of driving positive outcomes.

Importance of Manager Selection in Private Equity

The historical return spread between top and bottom quartile private equity funds has been around 15%, versus less than 3% for global equities, and less than 1% for public fixed income. This allows for greater value-add in private markets, but it also highlights the importance of implementing a thoughtful approach in order to achieve desired results.

Manager Selection Has Become More Complex

There are a number of factors that have increased the complexity of manager selection within private equity.

  • Return persistence has declined, making it harder to predict future outperformance based on prior funds
  • Managers are raising capital more frequently, so recent fund performance is less reliable for decision making
  • Fund size increases have grown in magnitude, which can lead to strategy drift and lower future performance
  • There are significantly more managers and strategies to consider than in the past, and many of these have not been directly tested by a prolonged market downturn

Faced with these challenges, it is important for investors to stay grounded in fundamental factors that have a proven history of creating success. This discipline can reduce complexity and lead to better decision making.

Focus on Fundamentals to Create Favorable Outcomes

What are some of the key factors that investors can focus on to remain disciplined in their manager selection?

  • Focus on teams that have invested together in both healthy and challenging market environments
  • Remain nimble but avoid trying to time the market
  • Favor strategies with long-term, consistent risk-return profiles
  • Evaluate less efficient markets like small buyout, but appreciate that inefficiency does not always result in higher returns
  • Consider co-investments alongside core existing managers, which can benefit returns and future fund selection

Our Position

Increased competition and a prolonged bull market have made it more difficult to select high quality private equity managers. In order to remain well-positioned, investors should incorporate changing market dynamics into their decision making while staying true to their core process and beliefs. Doing so can help investors maintain consistent execution and increase the probability of achieving a suitable long-term risk-return profile.


The views expressed herein are those of Asset Consulting Group (ACG). They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm.

This report was prepared by ACG for you at your request. Although the information presented herein has been obtained from and is based upon sources ACG believes to be reliable, no representation or warranty, express or implied, is made as to the accuracy or completeness of that information. Accordingly, ACG does not itself endorse or guarantee, and does not itself assume liability whatsoever for, the accuracy or reliability of any third party data or the financial information contained herein.

Certain information herein constitutes forward-looking statements, which can be identified by the use of terms such as “may”, “will”, “expect”, “anticipate”, “project”, “estimate”, or any variations thereof. As a result of various uncertainties and actual events, including those discussed herein, actual results or performance of a particular investment strategy may differ materially from those reflected or contemplated in such forward-looking statements. As a result, you should not rely on such forward-looking statements in making investment decisions. ACG has no duty to update or amend such forward-looking statements.

The information presented herein is for informational purposes only and is not intended as an offer to sell or the solicitation of an offer to purchase a security.

Please be aware that there are inherent limitations to all financial models, including Monte Carlo Simulations. Monte Carlo Simulations are a tool used to analyze a range of possible outcomes and assist in making educated asset allocation decisions. Monte Carlo Simulations cannot predict the future or eliminate investment risk. The output of the Monte Carlo Simulation is based on ACG’s capital market assumptions that are derived from proprietary models based upon well-recognized financial principles and reasonable estimates about relevant future market conditions. Capital market assumptions based on other models or different estimates may yield different results. ACG expressly disclaims any responsibility for (i) the accuracy of the simulated probability distributions or the assumptions used in deriving the probability distributions, (ii) any errors or omissions in computing or disseminating the probability distributions and (iii) and any reliance on or uses to which the probability distributions are put.

The projections or other information generated by ACG regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Judgments and approximations are a necessary and integral part of constructing projected returns. Any estimate of what could have been an investment strategy’s performance is likely to differ from what the strategy would actually have yielded had it been in existence during the relevant period. The source and use of data and the arithmetic operations used for calculating projected returns may be incorrect, inappropriate, flawed or otherwise deficient.

Past performance is not indicative of future results. Given the inherent volatility of the securities markets, you should not assume that your investments will experience returns comparable to those shown in the analysis contained in this report. For example, market and economic conditions may change in the future producing materially different results than those shown included in the analysis contained in this report. Any comparison to an index is for comparative purposes only. An investment cannot be made directly into an index. Indices are unmanaged and do not reflect the deduction of advisory fees.

This report is distributed with the understanding that it is not rendering accounting, legal or tax advice. Please consult your legal or tax advisor concerning such matters. No assurance can be given that the investment objectives described herein will be achieved and investment results may vary substantially on a quarterly, annual or other periodic basis. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.

Gryphon Financial Partners shall not in any way be liable for claims and make no expressed or implied representations or warranties as to their accuracy or completeness or for statements or errors contained in or omissions from them. This was created for informational purposes only. Gryphon Financial Partners, LLC is an Investment Adviser.

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