Stable teams don't get best results
New research has revealed that private equity teams which have seen upheaval since the economic crisis are more likely to secure higher IRRs.
- Published 4 November 2011 in Mid Market.
New research has revealed that private equity teams which have seen upheaval since the economic crisis are more likely to secure higher IRRs.
A study conducted by the Coller Institute of Private Equity and Capital Dynamics, the first of its kind, has dispelled the myth that stable teams generate higher returns. The study investigated the staff turnover and backgrounds of 56 private equity investment teams and found that managers with top-tercile turnover between investment periods perform better, generating an IRR of 26 per cent on average.
The study also shows that buyout firms which brought in partners with industry experience following financial downturns generated higher returns.
However, the research did confirm common beliefs that previous private equity experience is critical to a fund's performance.
Further research is still under way as the project aims to assess the effects of team stability on over 100 private equity firms. However, the initial results are significant enough to prove that team stability is no longer the industry's panacea. For both buyout houses and investors, this new information could have dramatic effects on fundraising, as the provision of re-ups based on stable teams will come into question.
In December, Real Deals' human capital feature will examine the matter in-depth.