Pressure to Invest = Performance Lost

05-06-2026

Many people’s pensions, among other funds, have relied on private markets in recent decades. They’ve poured trillions into these markets seeking to grow their funds, but a new study coauthored by the Daniels School of Business’ M. Deniz Yavuz, “Picking Partners: Manager Selection in Private Markets,” shows that the pressure to meet those allocation targets can quietly push limited partners (LPs), like pensions, down the quality ladder when hiring managers. Too often, they hire first time managers, harming their outcomes.

What funds are we talking about?

Yavuz and his coauthors analyze more than 61,000 capital commitments by 2,692 North American LPs into a broad range of private-market funds between 1995 and 2019. Their sample spans traditional private equity buyout, venture capital and growth funds, as well as real estate, infrastructure, natural resources, mezzanine, distressed debt and private credit.

Within this ecosystem, managers fall into several categories: established GPs with long records, those in the top or bottom quartiles of past performance, “young” firms with limited measurable history and truly first-time GPs launching their inaugural fund.

The surprising selection pattern

Conventional wisdom says large institutions should avoid first-time funds and instead back managers with proven track records. Yet Yavuz’s research finds that LPs are almost as likely to allocate to first-time or young GPs as they are to top-quartile performers.

The question is why do limited partners choose green fund managers? Yavuz’ study challenges conventional wisdom, which says that limited partners will pick a first-time manager in the hope of picking future starts. But this does not make sense based on data. Very few of those first-time managers evolve into top-quartile performers.

Pressure to invest – and its consequences

Why do sophisticated LPs keep hiring new managers that underperform the best alternatives? The answer, Yavuz says, is in the “pressure to invest,” a tool the authors created to measure the difference between the funds available for investing and the allocation of those funds.

When a limited partner has more money to invest than current funds allow and they are under pressure to allocate quickly, they reach for other options. Instead of tilting more toward experienced, high-performing managers, they back first-time funds. The pattern reverses when limited partners can allocate funds with low or no pressure. In other words, pressure to meet allocation and growth targets doesn’t just increase activity; it changes the mix of managers hired — toward those with weaker expected performance.

Practical implications for choosing managers

Yavuz’ research reminds LPs to:

• Be cautious with first-time funds. Historically, first-time managers, even those led by seasoned professionals, have delivered lower excess returns than top-performing incumbents, and only a very small fraction becomes persistent
• Watch internal pressure. When your organization is significantly underweight in a private-market bucket, or racing to ramp commitments, recognize that this pressure can nudge you toward weaker managers simply to get capital deployed.
• Remember that prior performance and relationships matter — but not equally. The single strongest observable predictor of selection in the data is whether the LP has invested with the GP before. Due diligence matters. Look at track records.
• Guard against relationship-driven bias. Personal connections between LP staff and GPs increase the probability a fund is selected and help managers raise capital and fees, but they do not translate into higher net returns for LPs on average.

Setting up a process to avoid pressure to invest and disciplining allocations will help guide which managers you hire, and, over time, improve the net returns your beneficiaries actually earn.