Professional Documents
Culture Documents
Agenda
GPs Matter !
Conclusions
The GP has a significant impact beyond just choosing deals with the right attributes
(industry, geography and timing)
The GP effect has been steadily INCREASING over the past decades, i.e. relative to
other factors it is today MORE IMPORTANT THAN EVER to get the GP selection right
ALPHA
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
-20%
-10%
0%
10%
20%
30%
40%
"We proactively
generate proprietary
dealflow."
"Our unique
investment strategy
differentiates us from
our competitors."
?
6
Metric 2
Relevant Peer IRR Benchmark
2.49x
2.18x
30.70%
Metric 1c
Components of PERACS
Alpha
TVPI
Variable-Rate
Mega Partners, LLC - Aggregate
7.6%
30.7%
6.5%
Delevered
Alpha
Sector
Choice
Effect
Replicable Unique PE
Leverage Leverage
Eff
Eff
PERACS
Alpha
28.8%
22.0%
20.0%
best available
purchased
Mega
Partners,
LLC - Aggregate
16.0%
12.3%
PERACS Alpha
Fund A
Profitability Index
0.9%
15.7%
29.0%
Fund B
2.2x
Fund C
2.4x
2.1x
1.4x
37
40
Fund A
Metric 5a
Lorenz Curve by % of Deals
Fund B
Fund C
80%
Gini Coefficient: 0.88
60%
38
40%
20%
0%
-20%
Metric 4a
Strategic Positioning
Mega Partners, LLC - Aggregate
7.5%
7.5%
-40%
0%
20%
40%
60%
80%
100%
Metric 3
PERACS Value Driver Bridge
42
-5.8%
4.1%
-6.8%
1.1%
100.0%
Metric 4c
Strategic Consistency
Mega Partners, LLC - Aggregate
47.7%
100%
83.9%
48.0%
1.2%
80%
Fund A
60%
Fund B
Second Most
Procyclical Quartile
Third Most
Procyclical Quartile
43
9.7%
Focal Procyclicality
FX
Total
Effect PERACS Alpha
= 30.7%
4.1%
0.4%
40%
This is an assessment of the
difference in investment
characteristics between the
20%
investment made in the last
5 years and those made in
0%
the last 6 to 10 years.
100.0%
Metric 4b
Investment Timing
Mega Partners, LLC - Aggregate
48.0%
Relevant Competitor
Procyclicality
44
39
Country
Size
Industry
Combined
Consistency Consistency Consistency Consistency
45
Metric 2
Relevant Peer TVPI Benchmark
7.6%
30.7%
6.5%
15.7%
Delevered
Alpha
0.9%
Sector
Choice
Effect
Replicable Unique PE
Leverage Leverage
Eff
Eff
PERACS
Alpha
3.3x
2.5x
2.2x
2.1x
2.4x
1.4x
Fund A
Fund B
Fund C
38
60%
20%
80%
Gini Coefficient: 0.88
60%
Second Most
Procyclical Quartile
Third Most
Procyclical Quartile
40%
Metric 5a
Lorenz Curve by % of Deals
41
40%
20%
0%
9.7%
-20%
0%
-40%
Focal Procyclicality
Relevant Competitor
Procyclicality
0%
44
20%
40%
60%
80%
100%
42
Agenda
GPs Matter !
Conclusions
Methodology
Methodology
Subsequent period
Fund II
Fund I
?
2008
2014
The repeatability of success in private equity is the subject of controversial debate in research
10
Question posed
Methodology
Previous period's
performance indicator
Comments
Persistence
Correlation
Is there a statistical correlation
between consecutive periods?
.
. . ... ? .
. . . .. . .... .. ..
. . . .. .. . .... ..
. . ..
Methodology
.
.. .
... . .. ..
.. . ..
.
.
Portfolio contribution
How can an investor improve the
development of their future
portfolio by selecting funds that
have been successful in the past?
Portfolio performance
indicator for market
average
Portfolio
contribution
Portfolio performance
indicator when
selecting top quartile
funds
Fund
manager
A
Fund
manager
B
Fund
manager
C
Time
Period 2
Fund I
Fund I
Fund I
98 99 00 01 02 03
Methodology
Persistence?
Period 1
Period 3
Fund II
Fund II
Fund II
04 05 06 07 08 09
Individual transaction
Data at transaction level allows for a deeper and broader analysis of persistence
12
Methodology
IRR1)
Multiple2)
Alpha
Period 1
(2002-2005)
19%
1.6
4%
Period 2
(2006-2009)
12
21%
1.7
7%
Period 3
(2010-2013)
10
16%
1.4
8%
Periods
1
Future
period 4
(2014-2017)
2
Can the multiple
achieved in the past be
perpetuated?
3
Will the fund also
generate alpha in
future?
IRR
Results
Multiple
Period 1
(2002-2005)
19%
Period 2
(2006-2009)
21%
1.7
Period 3
(2010-2013)
16%
1.4
1
Future
period 4
(2014-2017)
1.6
Can a
similarly high
IRR also be
achieved in
future?
Can the
multiple
achieved in
the past be
perpetuated?
No significant correlation
(Correlation coefficient: +0.018)
.
.
. . ...
. . . .. . .... .. ..
. . . .. .. . .... ..
. . ..
.
.. .
... . .. ..
.. . ..
.
.
Persistence
Results
Comments
Persistence
No significant correlation
(Correlation coefficient: -0.001)
.
. . . . ... . .. ..
. . . . ... .
. . . .. .. . .... ..
. . ..
.
.. .
... . .. ..
.. . ..
.
.
Results for IRR and multiple confirm results from earlier research
14
Alpha
Period 1
(2002-2005)
4%
Period 2
(2006-2009)
7%
Period 3
(2010-2013)
8%
Results
Results
Comments
Persistence
Significant correlation
(Correlation coefficient: +0.132)
.
.
. . ...
. . . .. . .... .. ..
. . . .. .. . .... ..
. . ..
.
.. .
... . .. ..
.. . ..
.
.
600
bps
3
Future
period 4
(2014-2017)
Return for
market average
Portfolio
1)
contribution
Return when
selecting top
quartile funds
Alpha is repeatable positive return contribution of 600 bps for future portfolio
15
Results
IRR
1
Future
period 4
(2014-2017)
Multiple
2
Alpha
3
Persistence of alpha, holding period, loss ratio and return dispersion is statistically significant
16
U.S. Buyouts
EU IRR
US PERACS Alpha
0.20
0.20
0.18
0.18
0.16
0.16
0.14
0.14
0.12
0.12
0.10
0.10
0.08
0.08
0.06
0.06
0.04
0.04
0.02
0.02
0.00
0.00
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
US IRR
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Comparing Top Quartile Cut-Offs across commercially available databases shows much greater
disagreement for IRR than for PERACS Alpha in many vintage years
17
Agenda
GPs Matter !
Conclusions
18
We divide the PE universe into "strategic cells", based on (1) industry sector, (2) timevarying deal-size quartile, (3) investment timing and (4) geography. We then measure
the Percentage of activity in each "strategic cell" for (I) the focal fund and (II) all other PE
investment activity.
We calculate the "strategic overlap" as the sum of joint activity (minimum of the
percentage invested of the firm and the percentage invested by all firms in a given cell)
over all cells.
A strategic overlap of 1 means that a fund invests exactly like the average PE firm a
score of 0 indicates that no other firm makes similar investments. This method is a
refinement of one of the criteria that determine the 'Fitness' score of the HEC-DowJones
PE Fitness Ranking.
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Fund V
5%
Highest Overlap Quartile
4%
3%
1%
0.93%
0%
Focal Strategic
Overlap Score
Relevant Competitor
Strategic Overlap Score
20
Aggregate
100%
Most Procyclical Quartile
80%
60%
20%
25.51%
0%
Focal Procyclicality
Relevant Competitor
Procyclicality
Note: this presentation is to illustrate insight generated by PERACS Analytics and should not be interpreted as suggesting the funds are competitors or comparable
22
Aggregate
100%
This is an assessment of the difference in
investment characteristics between the
investment made in the last 5 years and
those made in the last 6 to 10 years.
86.7%
33.3%
Note: this presentation is to illustrate insight generated by PERACS Analytics and should not be interpreted as suggesting the funds are competitors or comparable
24
Agenda
GPs Matter !
Conclusions
25
Problem
Idea
Solution
27
28
Hypothetical Example:
Relevant Peer TVPI Benchmark
Mega Partners, LLC Aggregate
3.3x
2.5x
2.2x
2.1x
2.4x
1.4x
Fund A
Focal Fund TVPI
Fund B
Fund C
30
Metric 3:
PERACS Value Driver Bridge
Fund B
70.8%
-8.0%
12.4%
-15.7%
100.0%
40.4%
Revenue
Effect
Margin
Effect
Multiple Deleverage
FX
Effect
Effect
Effect
Total
31
-15%
5%
20%
60%
-30%
100%
10%
100%
FX
Effect
Total
80%
40%
20%
Revenue
Effect
Margin
Effect
Multiple Deleverage
Effect
Effect
FX
Effect
Total
50%
Revenue
Effect
Margin
Effect
Multiple Deleverage
Effect
Effect
100%
-40%
30%
0%
100%
20%
20%
20%
Revenue
Effect
20%
Margin
Effect
Multiple Deleverage
Effect
Effect
FX
Effect
Total
Revenue
Effect
Margin
Effect
Multiple Deleverage
Effect
Effect
FX
Effect
Total
In-depth understanding of the GPs strategy and value creation skills serve as basis of
assessment of likely future performance
32
Agenda
GPs Matter !
Conclusions
33
Conclusions
34
35
Education
Ph.D. (INSEAD)
Research
Published in the Review of Financial Studies, Harvard Business
Review, Academy of Management Review, Strategic
Management Journal, Journal of Banking and Finance, etc.
Featured over 100 times in the business media (press, radio,
TV and online) in the past 2 years, including The Economist,
Financial Times, Wall Street Journal, Financial News, Les Echos,
etc.
Consulting
Tailored projects for leading sponsors, institutional investors
and advisors. Repeatedly served as advisor to policy makers at
the national and European level in questions related to the
possible regulation of private equity.
Work Experience
Federal Reserve Bank, US
Bain & Company Private Equity Practice
Teaching
HEC Grande Ecole Program
HEC Executive Education
Harvard Executive Education
TRIUM Global EMBA Program
INSEAD Executive Education
LBS Executive Education
Tsinghua University Executive Education
Company-Specific Executive Programs
36
About PERACS
PERACS is not just another performance benchmark, but it provides
customized and insightful metrics to quantify relevant elements of past
performance, risk attributes and strategic differentiators
Independent, credible, trustworthy, global, conflict-free, and singularly
focused
Granular analysis built up from company by company portfolio analysis
Formulaic and transparent. Trusted standardized comparisons
Dynamic quarterly updates and annual reviews
Methodology of leading industry academics and investors
Value added service provided by GPs to their LPs
Used in GP marketing materials with success
38
February 2014
January 2014
Winter 2012/2013
1000th fund analyzed on behalf of LP Clients, PERACS GP Client-announced Fund Closings exceed USD
70B, PERACS Performance Metrics available on Bloomberg Terminal, first GP Client engagements in
Mezzanine, VC, Emerging Market PE
"LP Champion" projects set up with LPs of all types, from fund-of-funds, over Sovereign Wealth investors to
insurance companies, public and private pension funds, university endowments and family offices from
basically all relevant parts of the world
PERACS Client-announced Fund Closings exceed USD 55B
Research Project ILPA-CA-HEC, leveraging PERACS methods
Spring 2013
"LP Champion" Initiative launched, supporting LPs with risk/return analysis of existing portfolio and in fund
due diligence
January 2013
20% of Fundraising GPs (buyouts in EU and US, by volume target fund size) use
PERACS numbers
Summer 2012
Spring 2012
Winter 2011/12
2011
2000 - 2010
39
Gerry
Flintoft
Extensive track record with oversight of PE at the $50 billion LACERA pension plan;
Director of Alternatives with PineBridge (formerly AIG Investments); advised clients on
portfolio construction, emerging markets, private credit, and hedge fund seeding; ILPA
Board Member and Chartered Alternative Investment Analyst (CAIA)
Peter
Mayrl
18 years of experience in European PE, both on the direct side (Permira, Lyceum) and
on the FoFs side (Allianz, Idinvest); experience in strategic consulting at Bain & Co
Fernando
Vazquez
40
Thomas C Franco
Jeff Gendel
John Higgins
Kathy Jeramaz-Larson
Andrea Lowe
Stephen Marquardt
Spencer Miller
Managing Director and Head of London Office of OPTrust Private Markets Group
Tom Rotherham
Sheryl Schwartz
Confidential
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