What is the best way to evaluate a PE investment team's track record?

1 Fund performance

The first step is to look at the fund performance metrics, such as the internal rate of return (IRR), the multiple of invested capital (MOIC), and the net asset value (NAV). These metrics indicate how well the fund has performed over time, compared to its peers and benchmarks. However, they are not enough to judge the quality of the investment team, as they may be influenced by external factors, such as market conditions, fund size, and fund vintage. Therefore, you need to dig deeper into the individual deal performance and the value creation drivers.

2 Deal performance

The second step is to analyze the deal performance of the investment team, such as the number, size, sector, and geography of the deals, the entry and exit multiples, and the gross and net returns. These indicators show how well the team has selected, negotiated, and realized the deals, and how much value they have added or subtracted from the portfolio companies. You should also look at the distribution of the deal performance, such as the proportion of winners, losers, and average performers, and the dispersion of the returns. This will help you assess the team's consistency, risk appetite, and diversification strategy.

3 Value creation drivers

The third step is to understand the value creation drivers of the investment team, such as the operational improvements, financial engineering, strategic initiatives, and market dynamics that have contributed to the deal performance. These factors reveal how the team has enhanced the competitive advantage, growth potential, and profitability of the portfolio companies, and how they have mitigated the risks and challenges. You should also evaluate the team's involvement and influence in the portfolio companies, such as their board representation, governance practices, and stakeholder relationships.

4 Team composition

The fourth step is to examine the team composition of the investment team, such as the number, seniority, background, and tenure of the team members, and their roles and responsibilities in the fund. These attributes indicate the team's experience, expertise, stability, and alignment with the fund's strategy and objectives. You should also consider the team's culture and values, such as their vision, mission, ethics, and collaboration style, and how they align with your own.

5 Track record verification

The fifth step is to verify the track record of the investment team, by requesting and reviewing the relevant documents, such as the fund offering memorandum, the quarterly and annual reports, the audited financial statements, and the deal case studies. You should also conduct reference checks with the existing and past investors, co-investors, portfolio company managers, and industry experts, to validate the accuracy and credibility of the track record information, and to gain insights into the team's reputation and performance.

6 Track record comparison

The sixth step is to compare the track record of the investment team, with those of the competing or comparable PE funds, and with your own expectations and criteria. This will help you benchmark the team's track record against the market standards and best practices, and to identify the strengths, weaknesses, opportunities, and threats of the team. You should also consider the team's future outlook and potential, such as their pipeline, portfolio, and fundraising plans, and how they align with your investment goals and preferences.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?