performance vintage

The Show Me the Money Ratio

by

May 28, 2014

Probably only professional engineers like to use two and three letter acronyms (TLAs) more than investment bankers and private equity professionals. For SME entrepreneurs, that is, owners and founders of small and medium sized companies, seeking quality private equity capital, the acronym alphabet soup can be daunting.

 

There is VC, PE, LP, GP, DPI, PME, ROI, IRR, NAV, IPO, LBO, and many more. Pictet Alternative Investments, an arm of the Swiss private bank, has just published, An Introduction To Private Equity that could be useful to business owners using DealMarket’s platform and who want to understand private equity, as well as some of the ratios and metrics used by PE fund managers, as well as institutional investors, to qualify investments and teams.

 

And just to keep us on our toes, an article in Unquote has an article on how and why the DPI (distributions to paid in ratio) metric should be used to complement the standard IRR metric for assessing GP performance. It is the “show me the money metric”, says Unquote.

 

The article warns that when it comes to private equity, there is no one-size-fits-all solution for how to best measure fund performance, therefore sophisticated investors employ a mix of metrics. (Image source: Pictet Alternative Investments)

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