Funds that distribute or write-up portfolio company valuations more than their peers are generally more likely to rank in the top quartile than the bottom quartile. Meanwhile, funds with a deeper J-curve, relative to their vintage peers, are more likely to be in the bottom quartile.
The performance of a buyout fund is not affected by how quickly the fund manager calls capital. Fast-paced investor drawdowns are not linked to stronger performance, the report found.
According to Pantheon partner Nik Morandi, these patterns are most meaningful when funds reach the fourth or fifth years of their life.
These types of cash flow-based analyses can help investors manage their primary portfolios and help in the diligence of secondary investment opportunities.
“If you can identify these relationships earlier you can make more effect use of the data before it comes common knowledge,” Morandi said. “It’s like an early weather report, they’re never 100 percent reliable but these patterns seem to be there.”
Analysis of capital calls, distributions, NAV uplifts and the depth of the J-curve during the early years of a fund’s life won’t replace other analyses fund managers use, but they will help investors manage their portfolios more actively, the report said.