Unambiguous Performance: Towards a Less Imperfect Way of Measuring, Analyzing, and Understanding Private Equity Performance

30 Pages Posted: 18 Nov 2020

See all articles by Gitanjali Swamy

Gitanjali Swamy

PCRI, Harvard Business School; IoTask; University of California, Berkeley; Auto-ID Center, MIT

Date Written: 2014

Abstract

In this paper, we elaborate on the particular challenges in understanding and measuring private equity performance. We examine commonly used measures including IRR (internal rate of return), the cash and value multiple, including TVPI (Total Value to Paid-in or Total Value Multiple), DVPI (Distributed Value to Paid-in), RVPI (Residual value to paid-in) and discuss their limitations in assessing true performance. We also explore the Modified IRR (MIRR), which despite not being in wide use, is a suggested complement to conventional IRR. We also propose t various approaches to combining these measures to arrive at a less ambiguous way of analyzing performance. Investors aware of these key concepts and tradeoffs will be in a better position to make appropriate choices and realize the full return potential of the private equity asset class.

Keywords: Alternative Assets, Private Equity, Benchmarking, PME, Valuation

Suggested Citation

Swamy, Gitanjali, Unambiguous Performance: Towards a Less Imperfect Way of Measuring, Analyzing, and Understanding Private Equity Performance (2014). Available at SSRN: https://ssrn.com/abstract=3702907 or http://dx.doi.org/10.2139/ssrn.3702907

Gitanjali Swamy (Contact Author)

PCRI, Harvard Business School ( email )

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IoTask ( email )

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University of California, Berkeley ( email )

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Auto-ID Center, MIT ( email )

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