Manager Selection: Dispersion Is Highest in PE vs. Other Asset Classes

Section II: Opportunities for LPs · from The State of Private Equity, Part 2B: Challenges and Opportunities for LPs.

Manager selection matters more in private equity than in almost any other private asset class. According to Cambridge Associates, the spread between top-quartile and median private equity managers across 2017–2021 vintage years was 6.4%, and the benefit of simply avoiding bottom-quartile managers was 4.0%. Both gaps are the widest of any private asset class measured, ahead of real estate, infrastructure, and direct lending.²⁷

Chart in the full report — source: KKR²⁷

In private equity, more than almost anywhere else in private markets, avoiding bottom-quartile managers is itself a source of return.

The takeaway for LPs is straightforward: in a lower-return environment, which manager an LP selects matters more than which asset class it allocates to. That reinforces the case, explored elsewhere in this report, for focusing on specialists, harvesting the complexity premium (discussed in Part 2A), and backing AI-forward managers, which we discuss next.