Private Equity Performance Evaluation and Asset Allocation Challenges
Explore the complexities of evaluating private equity performance and asset allocation, taking into account factors such as the J curve of cash flows, opportunity costs, and the sensitivity of internal rate of return. Discuss various methods and considerations for maximizing returns in private equity investments.
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Presentation Transcript
Risk Forum 2019 Private equity performance and asset allocation: impact of low rates and the J curve of cash flows Discussant: Sofia B. RAMOS ESSEC Business School
Paper Message The real performance of a private equity block on an asset allocation should take into account the return during the period before the cash is effectively invested by the GP, and including therefore the opportunity costs of the cash committed but not yet called. The paper draws the attention for important issues on Private Equity performance evaluation The methods used in the literature can be improved 2
Performance evaluation of investments Any approach should take into account Time value of money Risk What performance methods should be used? Opportunity cost Comparables Internal Rate of Return 3
#1 Better motivation Comments Is money really locked? Typically how much time? Provide anecdotes #2 Clarify Performance analysis for the investor or for the firm? Differentiate these two perspectives 4
Comments #3 Explore the sensitiveness of IRR IRR a measure of profitability sensitive to amount and timing of cash flows #4 Instead of annual performance analysis, why not using semesters , quarters, months? To improve accuracy 5
Comments 5# Model Trade-off between lower financial buffer and impact on performance Quantify the impact of this financial slack in performance 6
