Saturday, February 11, 2017

New Benchmarks for Private Equity Performance

This month Cambridge Associates (CA) introduced some nuanced Investment-Level Benchmark by vintage years, Gross/Net IRR quartiles and sector analysis. CA is also making a breakdown between "Gross IRRs" and "Net IRRs"looking for the lowest "fee drag".

CA is gauging the effect of fees on LP returns:
" fund-level fees cost private equity investors 616 basis points (bps) (on average), or about 0.2x MOIC over the life of a fund. Of course, the effect of carried interest can increase the fee drag significantly in better-performing funds and stronger vintage years. For example, for the five best-performing private equity vintages across 1986–2010, the average net to LP returns are a healthy 26.1% IRR and, as a result, the average gross-to-net spread is a hefty 959 bps per year. Expensive for sure, but a price most investors are quite happy to pay for such robust net returns."
Source: Cambridge Associate, A New Arrow in the Quiver: Investment-Level Benchmarks for Private Investment Performance Measurement

"Anytime you continually do something or even think about something the same way, you'll eventually stop growing" -Bill Eckstrom 

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