Artificially boosting IRR
The economy is (will be) f*cked. Valuations have tanked. Inflation still elevated, feeding into higher goods/service prices. EVERYTHING IS FUCKED COMPARED TO 2018-2021.
Especially from a Private Equity point of view. Things are getting tough, to say the least.
The last 4-5 years before the market bust of 2022 felt like the golden age for PE. At some point it SEEMED like everyone was exiting to PE or starting their own fund. Over the years I have seen plenty of new funds and it amazes me how some of these people managed to convince others to invest with them (having no credible track record whatsoever, "hey I like you, here is some money, dont lose it"). I cant help but imagine how most of these bottom bucket PE firms are F*CKED in this deal environment. There is probably a lot of IRR engineering going on at a lot of these firms if they plan on keeping their "Private Equity Investor" title on LinkedIn.
What are some ways IRR can be engineered to appear better? Any insights from people you know or own firm practices?
There is always some bullshit method to juice IRR in vogue. For example, subscription lines.
https://www.canterburyconsulting.com/blog/private-equity-a-deep-dive-in…
Juices IRR earlier on, which is still huge because it helps you raise your next fund. Nobody waits until their first fund is completely wrapped up to raise #2.
What are the ways to juice IRR? First thing to realize is that all IRR is basically fake - the only thing that is fact is realized IRR.
the easiest way to juice IRR is to do what all firms do by nature of being private - assign valuation for their own portfolio companies.
this is basically equivalent to grading your own homework. What do you think the biases are there?
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