Oliver Gottschalg, associate professor at HEC School of Management in Paris, has produced an illuminating new performance ranking of general partners that sees some smaller, lessheralded firms placed ahead of some of the biggest brands in private equity.
Gottschalg's top-ranked firm is Los Angeles-based Leonard Green & Partners while number three is Paris-based Astorg Partners and number five is Netherlands-based Gilde Buy Out Partners. Arguably none of these are household names in a private equity context.
Gottschalg says his research shows that, with a few exceptions, the largest firms tend to produce performance numbers close to the average of the funds surveyed. “As one would expect, the larger you get in private equity the more difficult it is to get outstanding returns,” Gottschalg told PEI.
A key differentiator of the Gottschalg-HEC Private Equity Ranking is its blending of six performance indicators as well as the exclusion of very small firms and recent fund vintages. The ranking gives greater weight to the performance of older funds, as these are deemed to provide more meaningful data.
The research looked at 85 private equity firms that have raised a total $345 billion through 257 funds between 1996 and 2005. The firms must have raised a minimum two funds worth at least $500 million combined during the period with full performance information available.
Each firm is assigned an “aggregate performance score” that measures the amount by which the GP outperforms or underperforms the average of all firms surveyed. A score of “0” equals the average and “1” equals one standard deviation above average.
Of the 85 firms, Leonard Green & Partners is top performer with an aggregate performance score of 2.89. Second on the list is Stockholm-based Nordic Capital, with a score of 2.12, followed by Astorg Partners on 2.10, London-based Charterhouse Capital Partners on 2.07, and Gilde Buy Out Partners with a score of 1.73.
The rankings support the view that firms specialising in niche markets often have the best performance. “You have to look at those niches and know how to play them to get outstanding performance,” Gottschalg says.
Another insight is that no specific private equity strategy produces dominant performance. “It is relatively more important to find the right manager, the right GP for a given strategy,” Gottschalg says.
Gottschalg, who has been studying the private equity industry for more than a decade, has publicised several other notable findings about the industry.
LIST OF GOTTSCHALG
|The private equity firms with the highest aggregate performance scores|
|1||Leonard Green & Partners (Us)||2.89|
|2||nordic Capital (sweden)||2.12|
|3||Astorg Partners (France)||2.10|
|4||Charterhouse Capital Partners (UK)||2.07|
|5||Gilde Buy Out Partners (netherlands)||1.73|
|6||Linsalata Capital Partners (Us)||1.48|
|7||Berkshire Partners (Us)||1.43|
|8||CVC Capital Partners (UK)||1.31|
|9||AXA Private Equity (France)||0.87|
|10||Brockway Moran & Partners (Us)||0.79|