Our family’s Friday ritual was pizza at El Grotto, a tiny place where the pizzaiolo knew our order before we sat down. Then came the glowing newspaper reviews. Lines snaked out the door, the owner added tables, and the once‑transcendent gem became… just another good restaurant trading on past glory.
I didn’t realize it then, but watching El Grotto’s transformation taught me everything I needed to know about why performance persistence—the holy grail of investment management—is largely a mirage.
What “persistence” means
Top‑quartile → top‑quartile one period forward. Random chance = 25 %.
The Persistence Mirage
Public‑Market Reality Check
The latest SPIVA Persistence Scorecard (mid‑year 2024) is brutal:
- Large‑cap equity funds: 0 % of 2022’s top‑quartile funds were still top quartile by 2024.
- Small‑cap equity funds: only 6.3 % repeated.
Most high fliers either slid down the rankings or merged out of existence.
In liquid markets, it seems persistence of cost is stronger than persistence of skill.
Buyout PE: From Legend to Coin‑Flip
Back in 2005, General Partners (GPs) flashed league tables showing three straight top‑quartile funds—citing Kaplan‑Schoar (2005), which found winners were 2‑3× likelier to repeat. Updated Burgiss cash‑flow data tell a different story:
- Pre‑2000 vintages: ≈30 % repeat rate (IRR).
- Post‑2000 vintages: ≈22 % repeat rate ex‑post—and statistically no persistence when using only metrics available at fundraising time.
In other words, your odds of picking a repeat winner are barely better than flipping a coin.
What Killed the Golden Goose?
| Culprit | How it eroded the edge |
|---|---|
| Playbooks went public | Lean manufacturing, zero‑based budgeting, digital sprints—now table stakes. |
| Capital flood | Global PE AUM ballooned from ≈$0.6 tn in 2000 to >$4 tn in 2024 (Preqin), pushing up entry multiples. |
| Consultants‑for‑hire | Operational talent now works with anyone who pays, levelling the field. |
| Better, cheaper data | Asymmetries in information and sourcing shrank. |
The Venture Exception—For Now
Networks still matter in VC: hot founders chase Sequoia and a16z, creating a 27‑34 % repeat rate (IRR/MOIC) and >50 % chance of staying above median (Harris et al.). Yet cracks are forming:
- Crossover hedge funds crowd late‑stage deals.
- Successful alumni launch competing micro‑funds.
- Innovation is geographically dispersed, eroding Silicon Valley’s dominance.
Private Credit: A Possible Bright Spot?
Early work in Financial Analysts Journal (Böni & Manigart 2022) finds ≈35‑40 % of top direct‑lending funds repeat—suggesting underwriting skill might persist longer than deal‑sourcing alpha. The dataset is young; proceed with caution.
The New Reality for Allocators
- Public markets – Keep fees low, use factor tilts and systematic strategies; past ranking is noise.
- Buyout PE – Diversify across GPs, vintages, and strategies. Scrutinise team stability, sourcing edge, and value‑creation process rather than headline IRRs.
- Venture – Pay up sparingly for access to elite networks, but recognise the moat is shrinking.
- Private credit – Focus on underwriting discipline and covenant strength; persistence data are promising but thin.
Pizza and Alpha rarely age well
Losing El Grotto forced my family to explore new neighbourhood spots. Some nights are magic, others merely good—but the search itself became part of the joy.
Investing is no different. Alpha rarely ages well. The edge now belongs to those who keep seeking—identifying quality as it emerges, not after it’s been reviewed and queued around the block.
How are you updating your manager‑selection playbook in a post‑persistence world?
