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The New Power Law & How I Built a $100B Portfolio | E2007
This Week in Startups
What creates great funds
The analysis of fund performance reveals that great funds outperform good funds significantly in terms of returns and investment strategy. Out of 155 funds analyzed, 150 were categorized as good, averaging 3.53 times money invested (MOIC), while just five were labeled as great, achieving an impressive 17.95 times MOIC. Notably, great funds excelled in generating home runs, achieving over 10x returns on 14.1% of their investments, compared to good funds, which yielded lower proportions of high-return investments. Furthermore, great funds produced outcomes nearly 2.5 times larger, with 68.42 times returns on their best investments versus 27.44 times for good funds. The data also disclosed that while both types of funds see some losses, great funds have a higher concentration of capital invested in high-return companies, with 38.7% of their capital in firms returning over 5x and 24% in those returning over 10x. In contrast, good funds allocated only 18.4% to companies delivering over 5x returns. This concentration strategy indicates that managers must skillfully identify potential high performers early to justify increased investments, as effective capital allocation drastically enhances returns. If good funds matched the concentrated approach of great funds, their returns could potentially jump to 8.13 times for investors, showcasing the critical impact of investment concentration and management selection on fund success.
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