How damaging are Tail End funds to private investment portfolio performance?

Third party data was gathered on the following pre-2008 vintage fund categories: buyout, venture, real estate, debt, and fund of funds. The general assumption has been, and aggregated asset class figures indicate, that all pre-2008 vintage funds leading up to the 2008 economic crisis underperformed in the subsequent years despite the economic recovery.

But upon closer examination, it is Tail End funds that dragged down the private equity and debt industry. The dichotomy between Tail End and the rest of the market (i.e. Performing funds) is dramatic. See below for a side-by-side comparison on the two largest segments: buyout and venture capital.

Tail End Performance Tail End Performance

  Source Pitchbook  

Not only were IRRs and the total-value-to-paid-in multiple (TVPI) greatly reduced throughout the investment period, but investors were “stuck” in their Tail End investments for typically 4-6 years longer than in Performing Funds.

This stuck Tail End capital missed the economic recovery vintage years’ high return performance in almost every segment of the private equity and debt asset class. In many cases, adding a substantial opportunity cost burden for investors.