Friday Letter Take our word for it we're top quartile

A press release from CVC yesterday left something to be desired.  

Limited partners love to make fun of any GP’s claim that their performance is ‘top quartile’. Is anyone’s ever not?, tends to be the sarcastic reply, especially when the GP doesn’t offer any supporting evidence.

But despite ‘we’re top-quartile’ having become a smirk-inviting cliché, some managers still hark back to it when they think it suits them.

Yesterday, under-pressure CVC Capital Partners put out a brief statement insisting its investment in Australia’s Nine Entertainment (NEC) wasn’t as troubled as some newspapers had suggested. It said four CVC funds were invested in the company, with less than 5 percent of their total capital.

And then, at the bottom of the page, there was this: “The overall performance of the CVC Funds continues to be top quartile after fully reflecting the latest financial position of NEC.”

Short and sweet, over and out. No details on what this overall performance has been, and nothing about which firms CVC is benchmarking against.

To be fair, it would have been surprising had the firm disclosed this kind of information in a press release. As anyone involved in private equity is well aware, GPs sending out league tables with their own and everyone else’s returns in them is not what happens.

It is also safe to assume that CVC’s investors do have the knowledge required to make the ‘we’re-top-quartile’ statement more meaningful, and they are the ones who need it the most. 

But what are the rest of us to make of it? What outsiders are being asked to take at face value here is that in an unspecified sample of unnamed competitors CVC’s results have been better than most.  This doesn’t amount to much, and the value of making the point in this way seems hard to grasp. Those doubting CVC’s ability to cope with a potential loss from NEC will not have found the reassurance reassuring.  If anything, it made the firm look rattled.

CVC is one of the star players in global private equity, and widely considered an astute operator. That said, PR is not among its strengths. CVC is notoriously tight-lipped, and when it does speak, as this episode confirms, what it says can seem unaccomplished.

Some members of the big buyout club have made much-needed improvements to their communications in recent years. Other key houses, CVC included, still owe it to themselves to do better.

And on the point about benchmarking: if the industry still wants to use ‘top-quartile’ as a classifier, it’s time to use it properly. Otherwise it is better to not use it at all.