PE International creates first ever rankings of pe firms
Private equity international magazine just released the first ever world ranking of the top 50 pe firms.
heres the link:
http://www.prnewswire.co.uk/cgi/news/release?id=1…
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PE firms are so obsessed with fund size that they only think the bigger the better. I wish they had rankings for the best PE shops to work at for Associates/Sr Associates, in terms of learning experience, quality of life, compensation, etc.
I wish they would rank them based on IRR achieved as well based on fund size brackets.
IRR's would be interesting to see, but I think it would still be hard to legitimately rank the firms off of that. Different vintage years, # of funds raised, region and sector focus, etc. could all distort rankings.
The reason that PE firms care so much about raising large funds is that they get paid an annual fee of assets under management for the first couple years of the LP/fund in addition to getting the carried interest later. Assuming it doesn't require much more work to invest $1B instead of $800MM, there's basically free money to be gained if you can just raise a bigger fund.
--didn't mean to insult you if that's what you were referring to snoopy. I agree it would be interesting to know more about quality of life vs. compensation at these firms, although I know at a lot of them the hours are equally as bad as in IB.
I don't think vintage, # of funds, region or sector would make a difference in comparing IRR's. That's like saying you can't compare asset managers from different regions or different sectors. A good PE group will invest in whatever region or sector will produce the higher IRR.
It is true that pe shops get paid a management fee. however, this is insignificant compared to the carry they get, which is based on irr. so. long story short, ranking pe shops by funds under management or fund size is like a bund of 12 year olds comparing the siye of their penises. from an lp point of view, siye dont matter, but returns do, so one vote for irr. also, carry, is paid ouit on the basis of returns, so from an investment professional point of view, irr is again what counts. carry is generally btw 85 and 90 percent of all fund income so...
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It would be also interesting trying to risk-adjust PE IRRs by the variability of their returns. I wonder if we PE groups actually beat the market if you adjust for the variability of our returns.
It does not make much sense to compare a 2001/2002 fund with a 2005/2006 fund. Different market conditions and investing enviroments (and exit environments) will have a significant impact on the returns of the fund. Best to compare funds of similar vintage (+/- 1 year) to get a better sense of fund performance.
Also, differences in geographies are also important. Funds that invest solely in North America and Europe will have lower returns than those in emerging market (all else being equal). The competitive environment in NA/Europe mean that deal returns are being bid down to a greater degree than (less competitive) emerging markets. And most private equity firms are somewhat limited to which geographies they can invest in.
However Alpine, I agree with your original post that it would be nice to see some comparison of fund performance in addition to pure fund size.
As we all know --- the IRR is a tricky metric.
Many investors use a whole slew of different metrics when evaluating a manager.
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