How do you measure 'vintage performance' in PE and what are the implications?
The vintage year is the year in which a fund starts its investment activity. Performance is typically compared grouped by vintage, because the market phase at the time of investment has a bigger influence on returns than sponsor performance does.
2008–2010 (crisis, bottom-buying) delivered a top-quartile net IRR of 23%+. 2018 (boom, high entry multiples) delivered a top quartile of only 16%. The top quartile for 2015–2018 (16%) is barely above the 2008–2010 median (15%) — despite better market conditions in the boom; a direct comparison is not apples-to-apples.
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| Vintage | Market phase | Net IRR median | Top quartile |
|---|---|---|---|
| 2008–2010 (crisis) | Bottom-buying | 15% | 23% |
| 2011–2014 (recovery) | normal | 12% | 18% |
| 2015–2018 (boom) | Multiple inflation | 10% | 16% |
| 2019–2021 (pandemic) | volatile | 14% | 18–22% |
| 2022–2024 (rate hikes) | Sector rotation | 8% | 14% (early indication) |
| Factor | Influence |
|---|---|
| Entry multiple at vintage | high (higher = lower returns) |
| Exit-multiple cycle | high (boom exits deliver more) |
| Leverage availability | medium |
| Sponsor skill | low–medium vs the vintage effect |
LPs compare funds from different vintages directly — that is not apples-to-apples. "Vintage-adjusted returns" are the fairer metric.
Question: "Why should an LP invest in your current fund?"
Answer: "Vintage 2024 starts in an interesting phase — higher entry multiples, but the multiple compression is already partly priced in. Over a 5-year hold I benefit from the market recovery. Top-quartile net IRR target of 17–19% — fits the market phase"