The Many Theoretical Deficiencies of Performance Evaluation in Private Equity

7 Pages Posted: 23 Sep 2018

Date Written: July 26, 2018

Abstract

In private equity, the skill of a general partner is conventionally gauged using the internal rate of return, a quartile or peer comparison, and a public market equivalent analysis. However, none of these methods reflect characteristics of specific value-creating manager activities, such as company growth or the use of leverage. The value bridge, focusing on sources of value, is promoted by some within the industry as a performance evaluation tool to fill this information gap. In this paper, we discuss theoretical deficiencies of the value bridge and show that it is inadequate for investment decision support.

Keywords: Private Equity, Attribution, Manager Evaluation, Value Bridge

JEL Classification: G23

Suggested Citation

Porter, Sheridan and Porter, Sidney, The Many Theoretical Deficiencies of Performance Evaluation in Private Equity (July 26, 2018). Available at SSRN: https://ssrn.com/abstract=3243147 or http://dx.doi.org/10.2139/ssrn.3243147

Sheridan Porter (Contact Author)

FEV Analytics Corp ( email )

Kirkland, WA 98033
United States

Sidney Porter

FEV Analytics Corp ( email )

Kirkland, WA 98033
United States

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