Data sourced from Dakota Private Markets, the private fund performance platform powered by Dakota. Learn More | Request Access
A re-up meeting usually starts the same way. The manager’s last fund ranked top quartile, the deck says so on slide three, and the LP’s investment committee wants to know whether Fund IV will look like Fund III. The rank answers the first question. It says very little about the second.
Performance persistence is the claim that past quartile rank predicts future quartile rank. Allocators lean on it whenever they commit to a successor fund. The research says the claim holds in some places and fails in others, and the difference matters for how you read a prior-fund rank.
The most cited recent study of this question comes from academics Harris, Jenkinson, Kaplan, and Stucke, who analyzed institutional investor cash-flow data on US buyout and venture capital funds. Venture capital performance stayed remarkably persistent across funds raised by the same GP, while buyout persistence weakened noticeably over time. The result changes when the test mirrors what an investor actually sees. Using the previous fund’s performance at the time of fundraising, the authors found little or no evidence of persistence for buyouts, and the conventional wisdom of backing previously top-quartile funds did not hold for post-2000 buyouts. They attribute this to interim performance at fundraising being only moderately correlated with final performance. Venture capital held up under the same test.
The practical point is that the rank on the deck is usually an interim rank. A fund that looks top quartile at the time of fundraising can finish elsewhere, which is why the mark behind the rank deserves as much scrutiny as the rank itself.
A quartile label also depends on the cohort, the vintage year, the metric, and the valuation date. A fund can lead on Net IRR and sit mid-pack on DPI, or rank well on TVPI because of unrealized value an exit has not yet tested. Beyond measurement, allocators watch what changed between funds.
|
Scenario |
What changed |
How allocators read it |
|
Same team, same strategy, similar fund size |
Little |
The most credible case for persistence |
|
Same brand, new team |
Who makes the decisions |
The rank was earned by people who may no longer be there |
|
Same team, much larger fund |
Capital to deploy |
The strategy may not scale to the new check size |
|
Top quartile driven by vintage |
The market, not the manager |
The rank may reflect timing more than skill |
None of these rules out a good outcome. They show where to spend diligence time. A manager in the first row has a persistence story worth underwriting. A manager in the other three needs a clear explanation for why this fund should rank like the last one.
Three questions do most of the work. First, which metric produced the rank, and does the manager look similar on the others? A manager in the top quartile on Net IRR, TVPI, and DPI is making a different case than one that leads on a single measure. Second, how much of the result is realized? A young fund with a large unrealized share is ranked on the manager’s own marks, which is the exact situation where the research finds persistence breaks down. Third, how does the fund compare against the right peers? Vintage-year benchmarking puts a fund against the cohort it actually competed with, which is the comparison that tests whether a result repeated.
Dakota Private Markets carries fund-level performance data such as Net IRR, TVPI, and DPI where available, so many of these checks run on one dataset.
A top-quartile rank tells you what a manager has reported so far, and persistence depends on whether the team, strategy, and fund size behind it carry into the next fund.
Dakota Private Markets gives fundraisers and allocators fund-level performance data, such as Net IRR, TVPI, and DPI where available, benchmarked by vintage year. Fundraisers can see how a prior-fund rank will read to an investment committee before the meeting, and allocators can test whether a manager’s results hold across funds on a consistent basis.
Explore Dakota Private Markets or request access to see the benchmarking data on live fund records.