https://www.institutionalinvestor.com/article/b1w…
The PE industry has used IRR for a while now and from the what the article is saying, the professor is saying that these are just estimates and are unsold marked to market estimates.
I don't think the PE industry will suddenly stop using IRR because of this one time but investors are starting to add more pressure.
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Isn't this pretty much what Enron did? lolllll
Doesn't everyone do this before listing?
Some of the comments just demonstrate ignorance about the PE industry:
How can a 10-year TPG fund have a “cash in/net cash out to investors” ratio of say 1.6x, and yet indicate a compound IRR of 21 percent? A 21 percent IRR over a six-year average life portfolio would show a ratio of 3.14x (1.21 to the sixth power), not 1.6x.
21% IRR / 1.6x MOIC implies a cash WAL of about 2.5 years, which is totally normal in a fund without recycling and divi recaps / fund-level leverage. Sure, some deals will be around longer but those don't generally produce high IRRs.
That’s why funds show returns based on a few dimensions:
net and gross
irr and moic
realized and unrealized
Each controls for an important factor: fees, time, estimates vs reality, respectively.
They are just numbers and everyone knows what’s in them. If you misinterpret a clearly defined metric, it’s because you don’t understand the nomenclature in which case you shouldn’t be in a position to assess these investment options.
The last dimension people look at is returns on a vintage level. So if you’re looking at any of the above figures in a vacuum, again, you don’t understand the asset class. You assess all these performance stats on a relative vintage level. So long as your comparing gross returns of a given fund with gross returns of similar vintage funds, you can get a sense of how they’ve performed.
So while a professor at Johns Hopkins has an opinion on the matter… who gives a fuck what he thinks? Most likely he actually knows all of the above I mentioned, and is just pumping out click bait content to get his name out there.
Very well said.
The complaints are dumb. If as an investor you don't know the difference between gross/net returns and unrealized/realized, then you shouldn't be investing in GP mgmt companies.
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