Fund Selection Adds No Alpha in Institutional Private Equity

What's New

Picking one institutional private equity fund over another does not generate outperformance, because the market for funds above $500 million has become efficient. John Renkema, Head of Private Markets at Avida International, argues this in a podcast interview on Fund Shack. Private equity still beats listed markets, but the edge comes from governance: committed capital, an empty portfolio and the freedom to pick a spot in the market. LPs should stop hunting future winners and build the widest possible portfolio across regions, sectors and vintages.

Why It Matters

The argument strips the premium from manager selection, which consumes half of all commentary on the asset class. It also moves pricing power to LPs, since access-constrained funds are a tiny slice of the market and GPs live off their investors. Fund-of-funds managers and gatekeepers who sell selection skill are on the other side. Avida advises LPs on strategy and governance, so a thesis that values portfolio construction over picking serves its model.

By The Numbers

• $500 million and above is the fund size at which Renkema found no evidence that selection beats peers of similar size and LP base.

• 20 to 30 LPs back a typical institutional fund, and each of them believes their choice will outperform. By definition they cannot all be right.

• 10 to 15 funds a year, in similar sizes, captures 90 to 95% of the diversification available.

• 5 to 7 years to build a portfolio. A stable program takes about a decade.

Memorable Quotes

• "There's no literature on the fact that you can actually select one fund over another." The selection industry rests on a claim its own data does not support.

• "They don't have any negotiation power." Continuation vehicles give LPs a binary roll-or-sell choice while the secondary buyer sets terms with the GP.

• "I'm very surprised that we haven't seen really big screw-ups yet." He predicted continuation vehicle failures 5 years ago and concedes they have not arrived.

• "The only true alpha that's being left is make sure that you generate a very well-diversified portfolio." Pacing and breadth replace manager picking as the LP's job.

The Wrap

Renkema's case holds in the mid-market and large buyout space, where hundreds of funds with 50 to 100 trained professionals each do the same work. It fails in venture, small buyouts, distress and emerging managers, where diligence rests on teams and strategy because no track record exists. It also fails if the governance advantage he credits for outperformance erodes as the market matures. Performance of the 2026 and 2027 vintages, committed while liquidity is scarce, will test whether disciplined pacing beats selection.