Performance measurement still a headache for investors

Benchmarking investment performance in private equity often produces misleading results, as the industry continues to make only slow progress towards adopting a global returns measurement standard.  

The absence of a single standard to compare the risk return profiles of different private equity investment strategies, managers and vehicles is a growing source of frustration for investors in private equity.

This is one of the key findings in the freshly released book “New Strategies for Risk Management in Private Equity”, published by pfm’s parent company PEI and edited by alternative asset manager Capital Dynamics. 

“When comparing performance, there are several ways to calculate returns and often those methods can provide different results,” said Jesse Reyes, founder and managing director of J-Curve Advisors and one of the book’s authors. “Even when you think you are measuring the same thing, you find out that often you are not.”

To resolve this issue, the CFA Institute, a global nonprofit organization of investment professionals, has been working on a tailored Global Investment Performance Standard (GIPS) for the private equity industry since 1995. Reyes is chairman of the GIPS committee on private equity performance presentation standards.

Proponents of GIPS hope to see it voluntarily adopted as institutional investors begin to require that marketing materials presented by GPs and other asset managers conform to these standards. But its pick-up in private equity has been slow, according to market sources.

One of the primary reasons for this relates to track record attribution, Kelly DePonte, a partner with placement and advisory firm Probitas Partners, told pfm.

“It’s not the returns on the name plate of the door, but who actually led the investment. And because of the team approach in private equity, that is difficult to diligence. I think too many organizations look for one or two key metrics that explain everything; but that is not how things work in private equity.”

Nonetheless, while there is still no ubiquitous adoption of GIPS in the private equity industry, “many GPs follow the spirit or intent or even the letter of the guidelines without knowing it,” said Reyes. Many investors are now even asking for GIPS-compliant presentations, he added.

Moreover, as some market commentators have pointed out, recent US regulatory reforms that allow GPs to market over the public airwaves –known as general solicitation – may fuel demand for a more rigorous standardization in performance reporting. An industry-wide GIPS could achieve that, noted Reyes.

Book launch – The Battle of the Investment Styles: At a book launch on Thursday June 5 at 5pm, John Gripton and Ivan Herger (Capital Dynamics), David Deagostino (BT Pension Scheme Management), Augustin Duhamel (17 Capital) and Jon Freeman (Coller Capital) will be at the Sofitel Hotel in Central London to discuss key topics of the “New Strategies for Risk Management in Private Equity” book at the Sofitel Hotel in Mayfair, Central London. Tickets are free; to secure yours please email