Alternative assets data platform
LP & capital allocator solutions
Industry's leading performance data
ESG data & insights
Companies & deals data
Flexible data delivery solutions
Sector In Focus
June 21 | Webinar
August 3 | Webinar
Sept 13 | Webinar
Lessons in alternatives
Interactive data map
Private capital salary information
Unbiased industry rankings
Objective top performers in alternatives
See Preqin Benchmarks in action
Key investor, manager & company data
Alternatives in academic research
What our clients say
Content featuring industry thought leaders
Take part in surveys & interviews
In this article
As most private market investments are not valued or traded frequently, it is a challenge for allocators to make sure they benefit from the higher expected returns, but also to keep their exposure within a certain range. It is therefore beneficial to monitor the cash flow pacing and value to determine if an investment allocation is on target.
The ‘J-Curve’ effect is used to describe the way private equity funds’ net cashflows are often negative in the early years, before increasing and turning positive in later years. In the first few years of the fund, negative returns are typically experienced due to the associated fees of investment, management, and the portfolio's immaturity. The fund’s net cashflow begins to increase in the later years when investments begin to mature and are eventually realized, in the form of distributions.
Benchmark pacing models such as the J-Curve, using the internal rate of return, can help analyze the cash flows and value of a private market’s portfolio in relation to a broader portfolio of assets. This in turn helps the industry anticipate returns and accurately predict or manage cash flows.
Below are some ways the J-Curve is currently used in industry:
This model creates an effect known as the ‘J-Curve,’ seen here.
Multiples are another metric used to measure returns for private capital investments. Expressed as a multiple (e.g. 0.5x, 1.2x, 2.0x), they look at the proportion of capital invested vs. the amount returned to investors. There are three types of multiples typically reported by funds:
The chart below provides an illustration of how these metrics change over a typical 10 year fund lifespan.