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The Million Dollar Cost of Your

DUE DILIGENCE PROCESS

FUND SELECTION IS CRITICAL TO YOUR SUCCESS…

With private markets returns expected to decrease (eVestment Private Markets, 2019), a chasm between top and bottom quartile returns, and investors increasingly consolidating GP relationships, fund selection has never been a more important factor in achieving your program’s return targets. 

43% of LPs expect private markets returns to decline (eVestment Private Markets, 2019)

Top quartile funds return 19 percentage points more than bottom quartile funds, on average (Vanguard, 2015)

75% of LPs are maintaining or decreasing their number of GP relationships (eVestment Private Markets, 2019)

…YET IS MORE CHALLENGING THAN EVER BEFORE

Investors can no longer rely on headline numbers as an indicator of future success: persistence of GP fund performance has declined and IRRs are becoming more opaque due to credit facilities and inconsistencies in calculations. A new approach is required instead.

Only 12% of successors to top quartile funds will repeat this performance.

2 out of 3 fund manager use credit facilities to manage drawdowns.

QUANTITATIVE DUE DILIGENCE HAS A DIRECT IMPACT ON YOUR RESULTS

The power to boost your portfolio’s returns is in your hands through a more skillful process, and not reliant on luck or access to funds.

An increase in skill within due diligence can lead to at least a one-to-two percentage point increase in annual IRR (Cagnaro, Senoy, Wang and Weisbach, 2016).

eVestment Private Markets, 2019

In a low return environment, capturing every additional point of return is imperative to help meet return targets and research has proven the most successful LPs are delivering this through a skillful process, not luck or fund access

THE CHARACTERISTICS OF A SKILLFUL DUE DILIGENCE PROCESS

#1: Look beyond a GP’s headline numbers and deep-dive into deal-level performance to uncover the true drivers of returns.

#2: Review a greater number of GPs to help discover new opportunities and future winners.

#3: Perform quantitative analysis earlier in your process and identify red flags and questions to better inform the rest of your due diligence.

Enhancing Private Equity Manager Selection with Deeper Data

Find out more about how you can strengthen your due diligence processes.