LPs beware, because ‘everybody has a great track record’, says LGT’s Vercoutère

With so much recent track record unrealised, investors must focus on cash-on-cash, says Ivan Vercoutère, co-founder of LGT Capital Partners.

Twelve years of “uninterrupted equity appreciation” have led to an environment in which analysis of GPs’ track records needs to be approached with caution, according to Ivan Vercoutère, co-founder of LGT Capital Partners and chair of the firm’s private equity investment committee.

“You need to look at track records, but I think today you need to look at a little bit more than that,” said the investor at an event in Zurich hosted by emerging private equity manager Manna Tree Partners this month.

Ivan Vercoutere
Vercoutère: be cautious of track records. Credit: Kevin Johnston, invstly.io

Following more than a decade of rising equity prices “you have to be very careful”, said Vercoutère, “because everybody has a good track record. I haven’t seen a manager without a good track record”.

Investors in private equity are reporting record-high returns across their portfolio, according to the latest iteration of Coller Capital’s LP Barometer, a survey of institutional investors. Forty-two percent reported net annual returns of more than 16 percent across the lifetime of their PE portfolios. This level has been exceeded only once – in 2007 – since the Barometer was first published in 2004, Coller noted.

The past five years, continued Vercoutère, have seen record levels of investment activity and fundraising: “a lot of velocity in the market” but only 10 percent of the investments made having been realised.

“The issue with track records today is that a lot of them are unrealised,” he said. “So how much credibility do you give that track record?

“At the end of the day, it’s cash on cash. You have to look at cash-on-cash track record, you’ve got to do PME public market equivalent analysis, because if you look at Nasdaq the last 12 years, the S&P 500 or MSCI World, the only place to be was in equities.”

“Private equity will continue to do well,” he said. “Maybe not as well as it has in the last 20, 30 or 40 years, but well-performing private equity will always offer a premium to public equity markets.”

Beyond the basics of diversification and consistent investment pacing, the veteran private equity investor also urged investors to allocate a sizeable portion of their private equity portfolio (“10 or 20 percent”) to emerging managers, “because there is always a renewal in the private equity market. If you look at all the established firms, they all started with Fund I”.