2021 HEC-Dow Jones 21 MARCH 2022

Mid-Market Buyout Private

Equity Performance Ranking
Sponsored by MJ Hudson
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Executive summary
This ranking lists the world’s top mid-market
buyout1 private equity firms in terms of aggregate
performance, based on their buyout funds raised
between 2008 and 2017.
This ranking answers the question: “which firms in the mid-market segment generated
the best performance for their investors, over the past years?” The ranking draws on
a comprehensive set of data on private equity fund performance provided by Preqin
and enhanced with data sourced directly from the private equity firms, themselves.
It uses a unique methodology to calculate the aggregate performance of a private
equity firm, based on a range of performance measures applied to all of the qualifying
funds managed by the respective firm. The method is able to aggregate performance
across vintage years, and considers both relative and absolute returns. In total, HEC
Paris analysed performance data from 517 private equity firms and the 991 funds they
raised between 2008 and 2017, with an aggregate equity volume of $1.5tr.

Professor Oliver Gottschalg

of HEC Paris, Academic Dean of
the TRIUM Global EMBA Program
Founder | Fund Performance Analytics
MJ Hudson

E: gottschalg@hec.fr

1.
For the purposes of this ranking, a firm is considered “mid-market” when the cumulative amount raised across all buyout funds in the relvant 10-year period
is $1bn-3bn.

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Ranking

Top 20 mid-market buyout firms out of 517

private equity firms
RANK FIRM PERFORMANCE
SCORE
1 GRIDIRON CAPITAL 3.77
2 NOVACAP 2.68
3 PARTHENON CAPITAL 1.87
4 OAKTREE CAPITAL MANAGEMENT 1.45
5 WATER STREET HEALTHCARE PARTNERS 1.42
6 THE STERLING GROUP 1.30
7 SENTINEL CAPITAL PARTNERS 1.16
8 LINDEN 1.13
9 JLL PARTNERS 1.12
10 ALTARIS 0.97
11 BV INVESTMENT PARTNERS 0.82
12 ARSENAL CAPITAL PARTNERS 0.79
13 CBPE CAPITAL 0.75
14 QUADRANT PRIVATE EQUITY 0.67
15 QUAD-C 0.63
16 EGERIA 0.62
17 CORTEC GROUP 0.60
18 WIN D POINT PARTNERS 0.57
19 RIDGEMONT EQUITY PARTNERS 0.56
20 SEIDLER EQUITY PARTNERS 0.53

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Introduction
The private equity industry is notorious for being
opaque, and access to any data is chronically
difficult. In particular, little is known about the
performance and competitive behaviour of the key
private equity firms. While performance rankings
exist for many other areas (the best ‘business
school’, the best ‘place to work’, the best ‘stock
market analyst’ etc), nothing worth that name had
existed in private equity. Until recently, the only
available rankings for private equity were based on
size alone, which has very limited meaning. Since
2009, HEC Paris and Dow Jones have joined forces
to publish regular rankings of private equity firms,
based on their historic performance and expected
future competitiveness.

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Simply speaking, what does the performance ranking

mean?
This ranking answers the question: “which mid-market buyout firms
generated the best performance for their investors, over the past years?”
It draws on performance information from all buyout funds managed by a
given private equity firm and aggregates their performance using a novel,
proprietary methodology (see below) into one overall performance score.

What are the data sources behind the rankings?

To obtain the most accurate picture of the universe of private equity firms and their investments, we drew on a variety of available
databases and performed a number of cross-checks of the information used in this study. We used the Preqin private equity
fund performance database as the primary database for fund performance information, in addition to an increasing amount of
information directly provided by private equity firms to HEC Paris, for the purpose of these rankings.

While HEC Paris has access to additional proprietary information on the activity and performance of private equity firms (HEC
Paris Buyout Database), this data is anonymous and cannot be used for this study.

How have the evaluated private equity firms been selected?

We gathered data, as of November 2021, on the universe of private equity firms worldwide on which Preqin provides
performance data, or which provided data directly to HEC Paris for the purpose of the performance rankings. This results
in a sample of 517 private equity firms and the 991 funds they raised between 2008 and 2017, with an aggregate equity
volume of $1.5tr. From this starting sample, we selected all those private equity firms that met the following objective
criteria:

• at least two funds which raised over the 2008 to 2017 period for which full performance information is available;
• performance data available on all of these the funds;
• between $1000m and $3000m raised during this time;
• investments in US, Europe or global; and
• at least ten observation years (i.e. the sum of the 'age' of all funds, as of today).

Why these selection criteria?

It is our intention to focus the analysis on private equity firms that represent the mid-market segment of the private equity
universe, defined based on their cumulative fundraising volume, over the relevant vintage decade. Also, we want to make
sure that we exclude GPs who only disclose returns of their best performing funds, and that we do not report any ‘one-hit-
wonders’, hence the requirement to have at least two funds with full performance information and ten ‘observation years’.
We do not consider funds raised 2018 or later, as their performance is still too unreliable to be judged at this point.

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How large and representative is your sample of private equity firms?

The 84 firms that passed the criteria raised a total equity of over $113bn through 185 funds between 2008 and 2017.

How has the aggregate past performance been assessed?

Private equity is an asset class that makes it particularly challenging to assess the aggregate performance of a given firm.
Performance is typically recorded at the fund level (and not for the entire firm). Furthermore, three factors make the
aggregation of performance to the firm level challenging:

1. alternative, complementary performance measures are used to assess performance (e.g., IRR vs. return multiple), so that
it is not trivial to know which measure to look at;

2. people disagree whether firms should be assessed according to their absolute performance or based on the
performance relative to a performance benchmark; and

3. private equity firms typically manage a number of limited-life funds, raised at different vintage years simultaneously, and
the so-called ‘J-curve’ phenomenon makes it difficult to say whether a four-year-old fund with a 15% IRR is better or
worse than a seven-year-old fund with a 20% IRR.

In a project sponsored by MJ Hudson, Prof. Oliver Gottschalg from HEC Paris School of Management, has developed
a proprietary methodology that makes it possible to comprehensively assess the aggregate performance of all funds
managed by a private equity firm. The basis for this assessment is the performance of each fund, measured in terms
of three complementary performance measures: IRR, DPI (cash-only return multiple) and TVPI (a return multiple that
considers accounting values of ongoing investments). We assess performance in each measure both as absolute values and
measured against the corresponding performance benchmark, leading to 2*3=6 performance indicators.

These six indicators are then combined for multiple funds based on a proprietary statistical method that considers the
empirically derived historical reliability of performance measured at a given ‘fund age’ as weights. The intuition for this
method is as follows: we determined empirically the reliability of performance of funds that are two, three, four etc.
years old. Our sample included detailed data on the evolution of the performance of 492 actual buyout funds over time.
Imagine the performance of a three-year-old fund predicts its final performance with 35% accuracy, while the performance
of a five-year-old fund predicts its final performance with 70% accuracy. We would then give twice as much weight to
performance data of five-year-old funds than to the performance data of three-year-old funds in the aggregation. Finally,
we combine all six performance measures to a single performance score2 using a standard statistical method called
‘principal component analysis’. This makes it possible to compare the overall value creation ability of private equity firms
across all their funds.

How should ‘aggregate performance score’ be interpreted?

The aggregate performance score is neither an IRR-type annual return measure nor a money multiple. It can only be
interpreted relative to the average aggregate performance score of all firms we analysed: An aggregate performance
score of one means that a given private equity firm has an aggregate performance that is one standard deviation above
the average performance, which would position it typically at the 85% percentile, i.e., 85% of all firms would have a lower
aggregate performance. Also, an aggregate performance score of two means that performance is twice as high as for an
aggregate performance score of one. A private equity firm with the average performance has (by design) an aggregate
performance score of zero.

2. The extracted factor has an Eigenvalue of 5.1 and captures 86% of the total variance of all 6 performance measures.

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How sensitive are the results to the valuation of unrealised investments?

The valuation of unrealised investments has only a small impact on the rankings. Firstly, we only consider funds that are
at least four years old. Secondly, according to our methodology, young (with relatively more unrealised investments) funds
carry less weight in the performance aggregation than older funds, as we consider that the performance of younger funds
is inherently less precise. Finally, two of our six individual performance measures (DPI) consider cash-on-cash performance
only and ignore valuations of unrealised investments.

What does the ranking not capture?

The performance ranking is backward-looking by definition. It cannot capture recent changes in the strategy, the core team
or the fund/deal size of a firm. As such, it may not capture all elements of the current competitiveness of a given private
equity firm.

Limitations
The confidential nature of the industry makes it impossible to compose a 100% accurate database on private equity, and
we cannot exclude the possibility of biases in our results due to missing or inaccurate information. However, we rely on the
same data sources typically used to compose industry-standard statistics of private equity activity and we consider our data
by far the best available for this kind of analysis.

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Important disclaimer
This material has been prepared on the basis of publicly available information,
internally developed data and other third-party sources believed to be reliable,
however, HEC Paris and MJ Hudson have not sought to independently verify
information obtained from these sources and make no representations or
warranties as to accuracy, completeness or reliability of such information. This
material is for information and illustrative purposes only, is not investment
advice and is no assurance of actual future performance or results of any private
equity segment or fund. HEC Paris and MJ Hudson do not represent, warrant,
or guarantee that this information is suitable for any investment purpose,
and it should not be used as a basis for investment decisions. Nothing herein
should be construed as any past, current, or future recommendation to buy or
sell any security or as an offer to sell, or as a solicitation of an offer to buy any
security. This material does not purport to contain all of the information that a
prospective investor may wish to consider and is not to be relied upon as such or
used in substitution for the exercise of independent judgment.

For further information, please contact Professor Oliver Gottschalg at

gottschalg@hec.fr

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Outperformance.

Difficult to prove
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to predict...

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