J-Curve

The J-curve describes the typical pattern of private equity fund returns over time, where initial negative performance gives way to positive returns as the portfolio matures.

Why the J-Curve Exists

Early Years (Negative):

• Management fees charged immediately
• Investments held at cost or written down
• No exits generating returns

Later Years (Positive):

• Portfolio companies grow in value
• Exits return capital plus gains
• Fees become smaller portion of returns

J-Curve Visualization

Return
  ^
  |          ___________
  |         /
  |        /
  |       /
0 |------/--------------> Time
  |     /
  |    /
  |___/
  Years 1-3    Years 4-10

J-Curve by Fund Type

Fund Type	J-Curve Depth	Recovery Time
Buyout	Shallow	3-4 years
Venture Capital	Deep	5-7 years
Growth Equity	Medium	4-5 years

Managing J-Curve Expectations

For LPs:

• Expect early negative returns
• Judge managers over full fund life
• Maintain commitment capacity
• Diversify across vintage years

For GPs:

• Set realistic expectations
• Communicate J-curve to new LPs
• Consider early distributions when possible