The ability to benchmark the performance of different asset classes is of paramount importance to investors when considering where to put their money. For publicly quoted equities and bonds which have clearly defined and often liquid markets, the returns are easily accessible, frequently in real-time, and easily understood. Private equity, however, is somewhat different, reflecting the irregularity in the timing and discretionary nature of the cash flows between the fund and its investors.
In light of these distinctions, measuring PE returns requires a different approach to measuring the performance of more traditional asset classes. This section examines how private equity performance is measured, the most popular metrics utilised in the industry, how alpha is derived and how well the industry fares in comparison to the public markets.
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