What is a top-quartile fund?

Funds are ranked against peers of the same vintage and strategy because returns differ widely from year to year and between, say, buyout and venture. The same fund can sit in one quartile on IRR and another on TVPI or DPI, and can move quartile when compared with a narrower or broader peer group. Most funds take at least six years to settle into their final quartile, so rankings of young funds can change.

Say 40 buyout funds started in the same year. The 10 with the highest net IRR are the top quartile; if the 10th best returned 18% a year, a fund needed at least 18% to qualify. Simple example. Terms vary by fund.

Managers often say they are top quartile when raising money, and the claim depends on which peer group, measure and data set is used.