Warburg returns?
According to PitchBook, the returns for Warburg’s flagship fund is:
2022 fund: -3% (this is irrelevant, fund is brand new)
2015 fund: 18% IRR, 3rd quartile
2012 fund: 11% IRR, bottom quartile
2007: 9% IRR, 3rd quartile
2005: 10% IRR, 2nd quartile
These returns seem pretty underwhelming to me? Given the growth in fundraising / performance of growth tech companies in the last 20 years I would’ve assumed better.
Just curious how they’ve had so much fundraising success / growth when they’re putting up cosnsistently 3rd quartile /
LPs, especially institutional, seem to be very sticky. Once you have some brand, nobody at a pension will get in trouble for writing you a cheque.
I always wonder how reliable the Pitchbook return stats are. Anyone can comment on that?
WP's returns are extremely mediocre even for a MF. Not terrible, but most of their recent fund's IRRs are sub 15% (closer to 10 than 15) and no net moics above 2x.
Warburg's profile is way more diversified than you're describing. I believe Industrial & Business Services is their largest group and they're also very deep in FIG. Actually don't see them too much in growth tech deals... they certainly still pursue the strategy but seemingly at a lower velocity than peers.
People seem to conflate large fundraises with stellar performance. Not WP but BCP has been a run of the mill fund for 20 years but CALPERS and others have no choice but to invest billions a year into the mega funds due to the sheer size of their portfolio. They can't go find the best returning managers (generally sub $2b funds) as they'd be too much of the LP base which they don't like doing (or legally cannot).
Most large-cap PE firms are asset gatherers with their mouths stuck to the proverbial firehose. Performance hasn't mattered for a long time.
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That's because most of the true large cap funds ($20B+ most recent fund) do have lights out historical performance. Warburg's fund isn't even that big esp in light of the headcount they have. But look at CD&R, CVC, H&F, APO, Advent, Thoma, Vista, BX RE, GIP, etc's historical performance and tell me people shouldn't be drawing a correlation between fund size and performance.
Current secondaries investment professional so hopefully can provide some insight.
First, Pitchbook is notoriously unreliable for accurate returns data. Here’s what I have for WP fund returns:
- GG (2019): 31.6% / 24.6% gross and net IRR, 1.5x / 1.5x gross / net MOIC
- WP XII (2015): 27.7% / 21.8% gross and net IRR, 2.3x / 2.1x gross / net MOIC
- WP XI (2012): 18.1% / 13.0% gross and net IRR, 2.0x / 1.8x gross / net MOIC
Second, and most importantly in order to understand the fundraising momentum and contextualize returns you have to understand WP’s strategy. WP positioning is most accurately described as an index fund of private equity investments as opposed to a strategy like H&F which makes heavily concentrated bets and thus has the potential for significantly higher / lower returns. WP targets 50-75 investments out of a single fund ranging across scale, stage and structure which creates more range bound but predictable returns outcomes. LPs allocate to WP funds since they have broadly been consistent compounders (nothing crazy but with highly distributed risk profile) and have the longest track record of any PE fund out there.
WP deal by deal performance has actually been quite impressive and they’ve had some recent home runs (10x on earthstone, 9x on Summit), plus tech investments have averaged something like a 5x MOIC, but the low relative concentration of each single investment dilutes the overall impact to fund performance back to mean of ~2-2.5x
The more important question is when is the time stamp for those marks? I think the most significant mark downs happened in Q4’22 and Q1’23 as most PE firms lagged the market in 2022. For example, Advent and HF had astronomical unrealized returns for their last couple of vintages through 2021 and 2022 that probably came back down to earth as they reflected public market valuations.
Ding ding ding, most of these firms with crazy performance on their 2016-2021 funds haven't realized much (maybe 0.5-0.8x DPI for the older and zero for newer with 1.5-3.0x still unrealized and being marked down significantly). They'll all likely end up being run of the mill funds when it's all said and done in 10 years. They marked things to the moon, used it to raise funds 2-3x larger than prior vintages to the point that carry doesn't even matter anymore for the MPs (see asset gather) as management fees have grown massively while headcount hasn't grown as much.
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Their energy investments were trash as well, another sector they just quit on since they sucked
#1- I don’t think those returns are correct. WP returns are generally better than average. Probably higher than BCP but lower than H&F.
#2- MF PE LPs and GPs are not incentivized to swing for top decile performance. If you manage $75bn and are hitting 2.0x MOICs, that’s a $10-15bn of carry dollars, spread across what 200-400 investment professionals? In PE, you get rich not by striking out 8 times and hiring a grand slam the 9th at bat. You get rich but keeping the music going as long as possible and hitting singles and maybe doubles along the way. Similarly, if you’re an LP/allocator your goal is not to pick the absolutely most stellar performing PE firm/vintage combo. It’s to pick a firm that is likely to do just fine (eg BCP) and in the off chance that they meaningfully underperform, in hind sight no one would have blamed you for picking them (eg just about any MF).
How much PE capital is out there? 75% of the funds are mathematically below 1st quartile, how do you think all those people are still keeping the music going and getting rich?
OPs post is akin to critiquing the musical score of a Taylor Swift album. You need to understand the game being played.
I get your point but BCP is a really bad example. They have extremely lumpy returns (entire fund is Chewy) and they reduced fund size by 40?% in the 2019-2021 window, can't imagine what they'd raise if they'd try to go now
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