Private Equity’s Most Consistent Performers

Asset owners hunting for the holy grail from alternatives managers—consistent alpha—would have done well to expand searches beyond the big names, according Preqin research.

Four buyout firms out of 196 earned perfect scores in the data provider’s league table: Sweden-based Altor, Wynnchurch Capital of Chicago, and, from New York, Rhône Capital and Trilantic Capital Partners.

Every fund raised by these four managers in the qualifying timeframe posted top-quartile performance based on both investment multiple and internal rate of return. Preqin took into account fund vintage, strategy, and geographic focus, restricting the list to active buyout managers that had raised at least three funds of similar strategy. Furthermore, qualifying firms must have either raised a new vehicle within the last six years or be in the process of doing so.

Nearly one-third (11) of the 35 managers on this year’s list of consistent outperformers were new additions since 2013. These up-and-comers include top-ranked Rhône and Trilantic, as well as Waterland (based in the Netherlands), Pechel Industries (France), Odyssey Investment Partners (US), ONCAP (Canada), and DRC Capital (Japan).

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Only a few of private equity’s established giants appeared on the list. Morgan Stanley’s private equity division ranked fifth, ahead of fellow veterans TA Associates, Apollo Global Management, and Berkshire Partners.

Blackstone, Carlyle Group, TPG, KKR, and Goldman Sachs Capital Partners were notably absent, either because they fell outside qualification parameters or failed to deliver sufficiently consistent alpha.

For example, Bain Capital—one of the largest private equity firms by assets under management—cracked the top 15 in Preqin’s 2009 list, but failed to earn a spot this year. Bain closed its most recent flagship buyout vehicles in 2008 (Fund X) and last April (Fund XI). The Boston-based alternatives shop did, however, come sixth among consistent performers in venture capital, which Preqin also ranked.

Five venture firms, all US based, earned perfect scores for top-quartile performance: Pittsford Ventures Management, Sequoia Capital, Benchmark Capital, OrbiMed Advisors, and Union Square Ventures.

Fund-of-funds managers—the third and final group assessed in the report—had the spottiest track records overall. Out of 92 qualifying firms, only Denmark-based Nordea Private Equity earned full marks.

Preqin PE

Source: 2014 Preqin Private Equity Performance Monitor (forthcoming)

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UBS and Deutsche Bank revealed they are facing inquiries by regulators related to their dark pools, joining Barclays, which was named in a fraud lawsuit by New York Attorney General Eric Schneiderman.

“UBS is responding to inquiries concerning the operation of UBS’s alternative trading system (also referred to as a dark pool) and its securities order routing and execution practices from various authorities, including the Securities and Exchange Commission (SEC), the New York Attorney General and the Financial Industry Regulatory Authority, who reportedly are pursuing similar investigations industry-wide,” the Swiss bank said Tuesday.

“The lawsuits allege principally that the defendants’ equities order handling practices favored high-frequency trading firms at the expense of other market participants,” UBS said.

The New York prosecutor filed a complaint last month alleging that Barclays had “engaged in a persistent pattern of fraud and deceit, lying to its investors in order to grow its own dark pool.” Schneiderman also announced he would expand his probing into the matter and “crack down on abuses wherever he sees them.”

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According to the UBS’s Q2 report, the inquiries include one that began in 2012 by the SEC concerning its dark pool disclosure practices. It said the litigation was in the “very early stages.”

Deutsche Bank also admitted Tuesday it had “received requests for information” from regulators concerning its high frequency trading activities, but did not reveal which authorities had inquired into their practices.

Both banks said they were cooperating with the matters and that they were named as defendants in “putative class action complaints” alleging they had violated US securities laws related to high frequency trading.

“The lawsuits allege principally that the defendants’ equities order handling practices favored high-frequency trading firms at the expense of other market participants,” UBS said.

Deutsche Bank was also hit with a downgrade in its senior debt rating Tuesday “prompted by the bank’s modest profitability which is being dragged down by litigation and restructuring costs and legacy losses,” according to Moody’s.

“Since 2012, Deutsche Bank’s reported results have been negatively affected by high litigation, regulatory, and restructuring costs as well as losses from its legacy portfolio,” the credit rating agency said in a statement. “The bank’s capital position has strengthened but a significant portion of the fresh capital may be required to address the firm’s exposure to future litigation and regulatory costs—an expectation that is incorporated in the current ratings.”

The German bank again made headlines last week when letters from the Federal Reserve Bank of New York slamming its financial reporting problems came to light.

“The size and breadth of errors strongly suggest that the firm’s entire US regulatory reporting structure requires wide-ranging remedial actions,” one letter said.

The Wall Street Journal reported Tuesday that the New York Department of Financial Services has been pushing to install a government monitor inside the US arms of Deutsche Bank and Barclays. The two banks were named in yet another lawsuit involving possible manipulations in the foreign-exchange market.