Chasing Shadows: Predicting Outperformers in Private Assets

In this piece, we examine the practical challenges investors face when selecting private asset managers and allocating capital. Unlike public markets, private assets lack continuous pricing, making real-time performance assessment difficult. When practitioners assess a new vintage, they often rely on the performance of previous vintages available at that time. However, these <italic>contemporaneous</italic> performance metrics are noisy and unreliable, as they depend on reported NAV, which is not realized until the funds’ closure. We find that the gap between contemporaneous and realized returns is larger for funds with low distributions and following market drawdowns. Our findings show that relying solely on <italic>contemporaneous</italic> performance signals may not yield better outcomes than a simple equally weighted portfolio. Instead of focusing only on historical performance, greater emphasis should be placed on diversifying across funds and vintages.