16. Performance of Private Equity

  1. H. Kent Baker and
  2. Greg Filbeck
  1. Christoph Kaserer1 and
  2. Rüdiger Stucke2

Published Online: 2 APR 2013

DOI: 10.1002/9781118656501.ch16

Alternative Investments: Instruments, Performance, Benchmarks, and Strategies

Alternative Investments: Instruments, Performance, Benchmarks, and Strategies

How to Cite

Kaserer, C. and Stucke, R. (2013) Performance of Private Equity, in Alternative Investments: Instruments, Performance, Benchmarks, and Strategies (eds H. K. Baker and G. Filbeck), John Wiley & Sons, Inc., Hoboken, NJ, USA. doi: 10.1002/9781118656501.ch16

Author Information

  1. 1

    Professor of Finance, Head of the Department of Financial Management and Capital Markets, TUM School of Management, Technische Universität München

  2. 2

    Research Fellow in Finance and Economics, Saïd Business School and Oxford-Man Institute of Quantitative Finance, University of Oxford

Publication History

  1. Published Online: 2 APR 2013
  2. Published Print: 18 MAR 2013

ISBN Information

Print ISBN: 9781118241127

Online ISBN: 9781118656501

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Keywords:

  • time-weighted returns;
  • internal rate of return;
  • modified internal rate of return;
  • money multiple;
  • net asset value;
  • public market equivalent;
  • risk-adjustment;
  • performance data provider;
  • limitations to benchmarks

Summary

This chapter gives an overview on the performance of private equity, the different performance measurement methods, as well as evidence from the recent literature and a database with current performance numbers. First, the chapter explains why the calculation of time-weighted returns is extremely difficult for private equity funds. As a result, alternative performance measures have been developed, which are based on the observable cash flows from a fund investor. On this basis, the internal rate of return (IRR), the modified IRR, and the money multiple, as well as the public market equivalent are introduced. Second, methodological as well as operational problems associated with these methods, the adjustment for risk, and the challenge in obtaining reliable performance data are discussed. Finally, the chapter gives an overview on the empirical findings in the literature on private equity performance, and presents recent performance numbers for three subasset classes of private equity.