Chasing Shadows: Predicting outperformers in private assets

Abstract

In this piece, we highlight the difficulty of using contemporaneous fund performance to assess private asset managers. Private assets are not continuously priced, and we find reported fund returns are noisy, at least until most of the capital has been distributed back to investors. Additionally, even though final fund performance is persistent for a manager, investors who select managers based on the contemporaneous estimates of performance of previous vintages may not outperform a simple equally weighted portfolio. In the face of large performance dispersion in private assets, diversifying across funds and vintages may be a better strategy than trying to select managers based on history.