Predicting Outperformance in Private Assets
Many investors default to using past performance as a key criterion when selecting asset managers, especially in private markets. However, the evidence supporting the persistence of outperformance is mixed and nuanced, particularly when comparing public and private asset classes.
Persistence in Private vs. Public Markets
In public markets, the persistence of outperformance is largely absent beyond what would be expected by chance, making past returns an unreliable guide for future results.
In contrast, private assets—private equity, venture capital, and private debt—have shown some degree of performance persistence, particularly among top and bottom quartile managers (see here, here, here, and here).
Key Findings from "Chasing Shadows: Predicting Outperformance in Private Assets"
Lloyd Han, Sean Klein, German Ramirez, and Rebecca Yuan's June 2025 paper, using Preqin data from 1985-2024, investigated whether past performance reliably predicts future success in private asset management, given the unique characteristics of private asset returns (infrequent, smoothed, and often opaque).
Major Findings:
Persistence Exists, But Timing Matters:
There is persistence in final performance among funds managed by the same sponsor, but for private equity, this is only evident once most of the fund's assets have been distributed. Contemporaneous (in-progress) fund returns are noisy and unreliable as predictors of ultimate outcomes. In other words, a fund’s performance while it is still active can differ significantly from its final, realized results.Venture Capital:
Strong evidence of persistence in performance was found, indicating that top-performing managers are more likely to repeat their success in subsequent funds6.Private Debt:
Data was limited, making it difficult to draw firm conclusions. However, Pascal Böni and Sophie Manigart, authors of the 2022 study “Private Debt Fund Returns, Persistence, and Market Conditions,” found that private debt managers “have specific skills, allowing them to provide consistent performance over consecutive funds, and that outperformance is not solely due to luck.”Wide Performance Dispersion:
The gap between top-quartile and median funds is substantial—up to 10 percentage points in venture capital and 4 percentage points in private debt—underscoring the importance of manager selection and diversification.
Implications for Investors
Rely on Completed Fund Performance:
The most reliable predictor of manager skill is the performance of funds that have already distributed most of their capital. Appraisal values and interim returns for in-flight funds, especially during market dislocations, can be misleading.Due Diligence Is Crucial:
Given the evidence of persistence, investors should prioritize managers with long, successful track records across multiple economic cycles, rather than relying on recent or interim performance.Diversification Remains Key:
Due to the wide dispersion of returns—even among top managers—diversifying across multiple managers is prudent.Particular Caution with Evergreen Funds:
For vehicles like tender-offer and interval funds, which continually make new investments, a manager’s long-term track record is even more critical.
Investor Takeaway
The research reinforces that while persistence exists in private markets, especially in venture capital, investors should be cautious about relying on interim performance metrics. Instead, focus on:
Completed fund results.
Rigorous due diligence on investment process and team.
Manager diversification.
Cost efficiency, as high fees can erode net returns.
These principles informed my own allocations to diversified, cost-conscious private market funds with established track records: Cliffwater’s Cascade Private Capital Fund (CPEFX) and JPMorgan’s Private Markets Fund.
Larry Swedroe is the author or co-author of 18 books on investing, including his latest Enrich Your Future. He is also a consultant to RIAs as an educator on investment strategies.