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In private markets, manager selection matters significantly more than asset class allocation.
In public markets, index funds exist for a reason. Most active managers underperform their benchmark over time, and the gap between a skilled and an average stockpicker is rarely large enough to justify the fees. For most investors, in most public market contexts, owning the market cheaply is the right call.
Private markets work differently. There is no index to buy, no standardized disclosure, and no guarantee that two funds investing in the same asset class will produce remotely similar returns. The spread between a top-quartile private equity fund and a bottom-quartile one can exceed 20 percentage points annually. In venture capital, the gap is even wider. This is why manager selection is crucial for advisors.
What to Look For
Private asset classes differ widely in structure, risk, and return profile. However, certain attributes consistently separate managers worth backing from those that should be rejected.
Sourcing edge. Where do the deals come from? A manager relying on the same opportunities everyone else can see has no structural advantage. The best managers see deals before they are widely shopped — through long-standing relationships with founders, operators, intermediaries, and co-investors. These unique networks are built over years, and there are no shortcuts.
Domain depth. Generalists exist in private markets, but specialists tend to win. A fund manager that has spent a decade investing exclusively in, for example, lower-middle-market healthcare services businesses understands what a good deal looks like, what a fair price is, and who the buyers will be at exit. That pattern recognition has significant value.
Operational capability. Buying an asset at the right price matters. What happens after the check is written often matters more. In private equity, the ability to drive operational improvements — reducing costs, accelerating revenue, professionalizing management — is a core return driver.
In venture capital, however, among what matters most is the ability to identify exceptional founders early and then help them navigate the journey from initial product to scale. Founders and leadership teams actively seek out managers that deliver real operational value, and this can drive better deal flow over time.
Incentive alignment. This is worth scrutinizing carefully. A manager whose economics are dominated by management fees rather than carried interest has different priorities from one whose upside is weighted heavily toward fund performance. Fund size matters, too. A manager that has scaled assets under management (AUM) beyond their capacity to deploy them carefully is implicitly prioritizing the fee line. The best managers understand their limitations and stay within them.
Consistency across vintages. A single strong fund can reflect good timing as much as skill. The more compelling signal is a manager that has generated solid, repeatable returns across multiple funds and market conditions. Loss ratios within funds matter, as do headline returns, because a portfolio that looks strong in aggregate can conceal a handful of winners masking a long tail of poor investments.
What to Avoid
Brand is not the same as quality. Some of the largest and most recognized private markets names have grown to a scale such that their most talented investors have departed, their deal sizes have grown beyond their historical sweet spot, and their returns have converged toward the mean.
Track records require scrutiny. Internal rates of return (IRR) can be engineered — through the timing of capital calls, the use of subscription lines of credit, or selective reporting of realized versus unrealized gains. Effective analysis examines individual deal outcomes — rather than fund-level aggregates — and adjusts for the market conditions in which returns were generated.
Why Access Matters
Identifying a top-quartile manager is difficult. Getting into their fund is often even harder. These managers are frequently oversubscribed, raise deliberately limited capital, and prioritize existing limited partners (LPs). Building a relationship well before a fundraise and being seen as a credible, low-friction partner is part of what earns an allocation.
This is where working with a specialist that has an established network makes a practical difference. Access without selection is a shot in the dark. Selection without access is just research.
Matthew Malone is the head of investment management at Opto Investments.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.