An increasing preference for private equity among institutional investors has led to the creation of complicated investment structures, which fund-level performance measures may not be able to reflect.
Global investment firm Cambridge Associates has released a new report, A New Arrow in the Quiver: Investment-Level Benchmarks for Private Investment Performance Measurement, showing how investment-level data and analysis can provide novel insights to complement traditional fund-level analysis.
“Looking beyond fund-level benchmarks is becoming more and more important for private equity investors,” said Rich Carson, senior director of private investments at Boston-based Cambridge Associates and report co-author.
He explained that the market has evolved past commingled funds with standard “2 and 20” fee structures. These are reflected in different trends, which include investors’ pursuit of co-investment and direct investment in portfolio companies, increasing variability in fee and carry options across managers and investors, and managers venturing into new strategies and geographies.
According to Carson and his associates, investment-level performance benchmarks let investors in private equity funds measure the performance of direct and co-investments; better understand performance by sector, strategy, or geography; and assess a fund’s performance by calendar years.
"Fund-level performance benchmarks … are incredibly important and necessary. But they're not always sufficient in today's evolving private equity environment," said Carson. “Investment-level data can provide 'apples-to-apples' benchmarks for direct and co-investments and they can complement traditional fund-level analysis by providing additional perspectives.”
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