(New York)

Every investor and advisor knows the mantra: past success does not predict future performance, or some iteration thereof. Countless market studies have proven the mantra. However, what about areas where the saying does not hold true? In private, non-liquid markets, studies actually show the opposite—that past performance actually does a good job predicting future success. For instance, in private equity and venture capital, funds with performance in the top and bottom quartile are very likely to continue in that quartile time and again.

FINSUM: So this is quite an interesting finding, but one with an equally curious subplot. It is not actually the funds that are predictive of the performance, instead it is the individual dealmakers in the funds, the study found. All these results make sense to us because VC and PE are not like large liquid markets, a lot of who gets access to the best deals depends on reputation, which allows winners to keep thriving.