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Private Capital Performance Data Guide

In this article

Sourcing, Validating, and Updating Performance Data

Data Sources

Preqin collects performance data from a variety of sources to ensure a high degree of accuracy and confidence. Since 2002, we have collected performance figures from institutional investors, which are obtained via Freedom of Information Act (FOIA) requests. LPs include CalPERS, Washington State Investment Board, and Florida State Board of Administration, among many others both in the US and the UK.

We also collect a substantial proportion of our performance data directly from fund managers, with over 2,200 firms submitting to date. We reach out to regular contributors every quarter to ensure we have the latest fund data available. Fund managers are increasingly recognizing the importance of providing us with accurate and up-to-date data. Preqin subscribers, many of which are institutional investors, use Preqin Pro to search for new investment opportunities and view performance on a fund level.

Other sources of data include listed firm financial reports, public filings, and annual reports.

Data Validation

To ensure calculations are consistent with our methodologies, we provide guidelines to GPs and FOIA sources when they submit data to us. Our internal Performance Team will then review the data and cross reference it against a benchmark of similar funds, as well as against other sources reporting for the same fund.

We will reach out to the GP if we require further verification to support the metrics provided. This is usually in the form of relevant pages from an LP report. Although very rare, there have been a handful of instances when we were not confident in the data provided and chose to exclude the data from our database.

The overall process of receiving, validating, and uploading performance data can take up to two weeks. During this period, we are looking to ensure the validity and consistency of the performance data received, thus offering the most accurate and trustworthy information in the market.

Updating Performance Data

Once collected and validated, all performance data is made available to subscribers via Preqin Pro. We also offer a range of performance-related tools for users to compare, benchmark, and analyze the data. Subscribers use the data for a variety of purposes including benchmarking, competitor analysis, due diligence, and market intelligence.

Compliance

We understand that fund managers are faced with an increasingly intensive regulatory environment. Preqin provides only factual data on Preqin Pro and never makes any explicit or implicit recommendations and/or facilitates transactions of any sort between investors and fund managers.

Preqin is an impartial data provider, and therefore the information displayed on our products does not constitute marketing and/or promotional materials, nor constitute general advertising, solicitation, or a public offer of securities and, as such, is not a regulated activity.

Performance Metrics Definitions

Vintage Year

Defined as the first year of investment/drawdown from the investor.

Capital Calls/Contribution

Measure of the cumulative LP capital invested. This amount should include management fees. It is shown as a % of total LP commitment:

Capital Called (%) = (Total LP Contribution / Total LP Commitment) x 100

Note: Capital Called may exceed 100% due to recycling of capital.


Capital Distribution (DPI)

The returns that an investor in a fund receives. It is the income and capital realized from investments less expenses and liabilities. This amount should be net of any carry/performance fees earned by the GP. It is shown as a % of total LP contribution:

DPI (%) = (Total LP Distribution / Total LP Contribution) x 100

Fair Value/Market Value (RVPI)

A valuation that represents the amount at which an asset can be acquired or sold in a transaction between willing parties. Also referred to as Ending Market Value, Net Asset Value, or Residual Value. This amount should be net of any carry/performance fees earned by the GP. It is shown as a % of total LP contribution:

RVPI (%) = (Unrealized Value of Fund / Total LP Contribution) x 100

Note: Portfolio valuations should be carried out in accordance with IFRS, GAAP, FAS 157 and/or International Private Equity and Venture Capital (IPEVC) guidelines.

Net Multiple

Reveals how many times investors have received, or are likely to receive, their money back and make a profit from their investments. It is the sum of the DPI plus RVPI, expressed as a multiple:

Multiple (X) = ({DPI (%) + RVPI (%)} / 100) = {Dist ($) + Value ($)} / Called Capital ($)

Net Internal Rate of Return (IRR %)

Money-weighted return expressed as a percentage. Net IRR uses the present sum of cash contributed, the sum of distributions, and the current value of unrealized investments and applies a discount. This amount should be net of any carry/performance fees earned by the GP.

Calculation Example

The following example simulates how to calculate the performance ratio for a fund with the following characteristics:

Total LP Commitment = $10,000,000

Total Capital Called to Date = $1,455,000

Total Distribution to Date = $750,000

Unrealized Fair Value = $1,190,000

As of Date: 30-Jun-2017

Called-up Ratio

The called-up ratio in this example would be calculated as follows:

Total Capital Called to Date = 1,455,000

Fund Size = 10,000,000

Capital Called (%) = (1,455,000 / 10,000,000) x 100

Distribution to Paid-in (DPI %) = 51.5

Remaining Value to Paid-in (RVPI %) Ratio

The remaining value to paid-in ratio in this example would be calculated as follows:

Unrealized Fair Value = 1,190,000

Total Capital Called = 1,455,000

Remaining Value to Paid-in (RVPI %) = (1,190,000 / 1,455,000) x 100

Remaining Value to Paid-in (RVPI %) = 81.8

Net IRR (Internal Rate of Return %)

If the transactions for this fund were as follows, the net IRR can be calculated on Excel using the cash flow data:

Transaction TypeTransaction DateTransaction Amount
Capital Call12-Jan-14-100,000
Capital Call23-Jan-14-105,000
Capital Call15-Jan-14-100,000
Capital Call14-Feb-14-175,000
Management Fees29-Mar-17-10,000
Capital Call14-Apr-17-100,000
Capital Call23-Jun-14-105,000
Capital Call14-Sep-14-100,000
Capital Call23-Nov-14-175,000
Management Fees29-Dec-14-10,000
Capital Call14-Apr-15-100,000
Capital Call18-Sep-17-100,000
Distribution13-Nov-15+250,000
Management Fees29-Dec-15-10,000
Capital Call23-Jun-16-105,000
Distribution29-Jun-16+300,000
Capital Call18-Sep-16-50,000
Management Fees29-Dec-16-10,000
Capital Call17-Jan-17-100,000
Distribution14-May-17+200,000
Unrealized Fair Value30-Jun-17+1,190,000
Net IRR: 14.0%


IRR Formula in Excel = XIRR (transaction amounts, transaction dates)

Capital Calls: Negative sign

Management Fees: Negative sign

Distribution: Positive sign

Unrealized Fair Value: Positive sign

Performance Overview

Using the ratios calculated above, the performance ratios for this fund would be as follows:

Fund NameVintageTypeTotal LP Commitment (mn)Called (%)Dist (%) DPIValue (%) RVPINet IRR (%)As of Date
Sample Fund2014Venture Capital10 USD14.651.581.814.030-Jun-17


Preqin Benchmarks & Quartile Rankings

What Is It?

Preqin Benchmarks are calculated using performance information for over 10,000 private capital funds – the largest pool of fund returns data available globally. Subscribers to Preqin Pro can view the individual returns for all constituent funds on a named basis, and also access Preqin’s custom benchmark tool.

Methodology

Market Benchmark searches can be made based on funds’ vintage, investment strategy, and geographic focus. Within each benchmark group, performance metrics of called-up, distributed, unrealized value, multiples, and net IRRs are calculated for the following:

  • Median – the middle value from an ordered set of a specific benchmark grouping (for each performance metric).
  • Average – the mean net IRR is taken from a specific benchmark grouping to calculate the average fund performance metrics.
  • Pooled – accounts for the timings of calls/distributions; aggregates cash flows of constituent funds and calculates resultant net IRRs.
  • Weighted – takes the performance ratios of each individual fund and calculates a weighted average using the size of each fund.

Within each benchmark, funds are assigned a Quartile Ranking – an easy indicator of how a fund is performing relative to other constituents in the benchmark group. The ranking applies to funds that are included in our ‘most up-to-date’ range, i.e. have reported data within the past two years.

Both the multiple and net IRR rankings of each constituent fund are used to determine the fund’s overall quartile rank, with equal weighting. If one of the two metrics is unknown, its ranking is estimated based on the known metric’s ranking. In instances where the sample size is too small for a specific benchmark group, the fund will be compared to a broader category.

Example

A 2014 vintage Europe-focused growth fund will follow the below expansion routes and be allocated a default benchmark where there are at least eight funds in the benchmark group.

Best case – most granular → 2014/Europe/Growth

Expand geographic focus → 2014/All Regions/Growth

Revert to specific region and expand fund type grouping → 2014/Europe/All Private Equity

Expand geographic focus → 2014/All Regions/All Private Equity

Revert to specific region and expand fund type grouping → 2014/Europe/Private Capital

Expand geographic focus → 2014/All Regions/Private Capital

Buyout funds and real estate funds also take into account fund size grouping and primary strategy, respectively, when assigning benchmark groups.

We also show historical quarterly performance data, which can be searched for using the ‘as of date’ filter. This allows benchmarks to be evaluated as at different quarters during the funds’ lifecycle.

Users also have the option of using the Custom Benchmarks tool, which offers a way to create tailor-made peer groups of funds from which benchmark data can then be extracted.

Sources

Preqin receives performance data from GPs, LPs, and listed sources. For a given as of date for a fund, one source is chosen based on consistency, completeness, and timeliness – it is this data that is then used for benchmarks. The chosen historical sources can be viewed for each fund, along with the rest of the sources reporting data for the fund. For some reported data, we are unable to disclose the source.

Users have three options when downloading performance data for a given fund:

  • Download all chosen historical data
  • Download all data sources for a given as of date
  • Download all data for a given source

It is also possible for users to access all historical data from all sources via an API.

Assets under Management

What Is It?

Assets under management (AUM) is used as a measure of the size or growth of the industry. It is the sum of both dry powder and unrealized value:

  • Dry Powder: Available capital to fund managers for investment, i.e. committed capital that has not yet been called for investment.
  • Unrealized Value: Value of unrealized portfolio investments.

Methodology

The AUM for a given fund is calculated as follows:

  • Dry Powder: The capital called amount is subtracted from the fund’s size/latest close size. If the Called % metric is not reported for a given fund, a benchmark Called % is used instead.
  • Unrealized Value: The RVPI % metric is multiplied with the amount of capital called. If the RVPI % metric is not reported for a given fund, a benchmark RVPI % is used instead.

Private Capital: Assets Under Management by Strategy



Horizon IRRs

What Are They?

Horizon IRRs indicate how a particular fund strategy or geographic focus has performed over a defined period. Preqin calculates horizon IRRs over one, three, five, and 10 years to date, as well as rolling IRRs.

Private capital horizon IRRs should be viewed with some caution as horizon returns are calculated using cash transactions as well as portfolio valuations, which are an estimated value calculated and provided by the GPs. As an illiquid asset, private capital investors are committed for a long period of time and cannot cash in their returns on such short periods.

Methodology

Preqin calculates horizon IRRs using cash flow data for over 5,000 private capital funds. For a fund to be included in the sample for a given time horizon, it must be active at the start and the end of the period, i.e. have an unrealized value reported at both start and end dates. The IRRs are calculated using:

  • The fund’s net asset value (NAV) at the start of the period as a negative outflow.
  • LP contributions as a negative outflow (treated as the initial investment).
  • Distributions as a positive inflow.
  • The fund’s NAV at the end of the period as a positive number.

The horizon IRRs are capital weighted, i.e. larger funds have more of an impact on the overall calculation.

Private Equity Horizon IRRs by Fund Type



PrEQIn Quarterly Index

What Is It?

The PrEQIn Private Capital Quarterly Index captures in an index the return earned by investors on average in their private capital portfolios, based on the actual amount of money invested in private capital partnerships.

Methodology


% Change in Quarter = {(NAV at end of Quarter + Distributions during Quarter) / (NAV at Start of Quarter + Called during Quarter)} - 1

NAV: Net asset value in USD.

Called during Quarter: Total capital drawn by fund managers in USD during the quarter, meaning the cumulative cash called to date as of the end of the quarter minus the cumulative cash called to date as of the start of the quarter.

Distributions during Quarter: Total capital distributed to LPs in USD during the quarter, meaning the cumulative cash distributed to date as of the end of the quarter minus the cumulative cash distributed to date as of the start of the quarter.

Each data point is individually calculated from the pool of closed-end funds for which comprehensive performance data is held, as of both the start and end of the quarter.

Historical data points are not recalculated as time passes, and so the universe of funds for each quarterly point changes over time as funds enter/exit quarterly calculations.

PrEQIn Index - All Strategies (Rebased to 100 as of 31 December 2007)  



Cash Flow Data

What Is It?

Preqin’s Private Capital Cash Flow data is the industry’s largest source of reliable cash flow data, allowing users to undertake extensive financial modeling and gain a complete understanding of how private capital fund returns evolve over time. The data consists of 280,000 historical data points for over 5,000 private capital funds of all types, including over 140,000 cash flow transactions and over 150,000 historical NAVs.

This dataset is made up of fund-level cash flow transactions – capital calls, distributions, and valuations.

  • Capital Calls: Capital called up by the GP from LPs for investment.
  • Valuations: The estimated NAV of the fund portfolio.
  • Distribution: Capital returned to investors from the GP.

Methodology

Cash flow data is gathered from aggregated data – typically, reliable FOIA sources are used, but on occasion data is included directly from consistent reporting GPs.

For most funds, data tends to derive from a single source that has been reporting in quarterly metrics for the fund from inception. Quarterly cash flow amounts can then be calculated from this data using the mid-point of the quarter and normalizing each fund to a commitment of 10mn in the fund’s denominated currency.

Public Market Equivalent Indices

What Are They?

Typically, private capital returns are not directly comparable with public market indices, due to the illiquid nature and irregular timing of cash flows for private capital assets. The development of the public market equivalent (PME) measure of returns, however, provides a more meaningful, like-for-like comparison. PME metrics benchmark the performance of a fund, or a group of funds, against an appropriate public market index while accounting for the timing of fund cash flows.

Methodology

The PME tool enables the comparison of private capital returns against seven public market indices using a choice of four PME methodologies: Kaplan- Schoar PME, Long-Nickels PME, PME+, and Direct Alpha. All the methodologies utilize the since-inception cash flow data Preqin holds for over 5,000 funds. The table below outlines the calculations involved in each of the four PME methodologies offered, and their advantages and disadvantages:

Benchmark MethodologyMetricPrivate Capital Outperformance if:Description of CalculationStrengthsWeaknesses
KS PME (Kaplan-Schoar)RatioValue > 1Calculated by discounting the private capital fund cash flows by the public market index value. The discounted distributions plus the current remaining value are divided by the discounted contributions to obtain the ratio.The calculation looks at the ratio of outflows vs. inflows as opposed to generating an IRR, which is time dependent and easily manipulated. Easy to interpret.Ignores the timings of cash flows.
LN PME (Long-Nickels)Annualized RateEstimated PME IRR < Private Capital Fund IRRContributions to the private capital fund are converted to an equal purchase of shares in the public index. Distributions represent liquidation of share in public index. IRR calculation uses the same contributions and distributions as the private capital fund, but with a different final period remaining valueLN PME IRR is directly comparable to the PE Fund IRR, allowing an apples to-apples comparison.IRR sensitive to early distributions. Large distributions could cause a negative PME final period remaining value, making PME IRR calculation computationally impossible.
Capital Dynamics PME+Annualized RateEstimated PME IRR < Private Capital Fund IRRUses a fixed scaling factor (lambda) to modify each distribution to ensure the PME final period remaining value is the same as the private capital fund remaining value. IRR calculation uses modified contributions and distributions but with the same final period remaining value.As for LN PME, with the added benefit of avoiding a final period negative remaining value, making PME IRR calculation possible in more cases.PME+ does not match the cash flows perfectly.
Direct AlphaAnnualized Rate of Excess ReturnDirect Alpha > 0Calculated by discounting the private capital fund cash flows by the public market index value. IRR calculation uses the discounted values to obtain the annualized rate of excess return.Calculates the exact rate of return of outperformance, rather than an indirect estimate.N/A



Top Performers

What Is It?


Most Consistent Top Performing Managers: Ranking fund managers by the average quartile ranking of their funds.

Top Performing Funds: Ranking individual funds by their Internal Rate of Return (IRR).

Methodology


Most Consistent Top Performing Managers: Preqin generates quartile rankings for individual funds according to their investment strategy, geographic focus, and vintage year. Each fund universe constitutes funds of similar types, geographic foci, and vintage years, enabling quartile rankings to be assigned using a combination of both the net IRR and multiple rankings of each constituent fund – with equal weights placed on both. In instances where the sample size is small, the funds are assigned quartile rankings that are generated against the private capital industry in its entirety.

The tables are compiled using only funds for which Preqin assigns a quartile ranking, and so for this reason, funds within the first three years of their lifecycle have been excluded as these funds are too early in their fund lives to generate meaningful IRRs.

Furthermore, only managers that have raised at least three funds of a similar strategy are considered and further narrowed down to include only active fund managers (whereby the fund manager must have raised a similar strategy fund within the past six years). The lower the average score, the more consistently the manager has performed.

The average rank is calculated by assigning topquartile funds with a weighting of 1, second-quartile funds with a weighting of 2 and so on – and then an average of the scores is taken. Only firms with average quartile rankings of below 2.00 are considered.

Top Performing Funds: To determine the best performing funds by fund type, Preqin has grouped together funds of similar vintage years and geographic foci where available. Preqin only includes funds that have called up at least 50% of committed capital and the net IRR is used as the key determinant of performance.

Average Rank = {(#No. Q1 funds*1) + (#No. Q2 funds*2) + (#No. Q3 funds*3) + (#No. Q4 funds*4)} / Total number of funds with a Quartile Ranking

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