Valuation and Return Measurement in Private Equity: An Overview

Published 25 May 2011
Reference 5792
Industry Private Equity
Region Global
Summary

The topic of valuation and measurement of return (i.e. investment success) permeates the whole life cycle of private equity (PE). While the valuation part is in many ways similar to other direct investment strategies, the measuring of returns in private equity is a notoriously difficult business, mainly due to the absence of an efficient and transparent market for the asset class. So while theoretically not difficult, the wide range of practical approaches – often designed to produce a specific outcome – tend to be confusing to an outsider or new student of the field. This paper does not attempt to systematically explore all the variations that exist in the market but rather to give an overview of the most common approaches, highlighting their strengths and weaknesses and pointing to major alternative methods.

Teaching objectives

see abstract

Keywords
  • Private Equity
  • Valuation issues
  • Return measurements
  • Portfolio companies
  • Acquisition targets
  • RD0511
  • AR2011
  • AR1011
  • IAF 10/11
  • IAF GPEI
  • Corporate Governance
  • Investors, Stakeholders and Accountability
  • Investors, Stakeholders and Accountability
  • GPEI
  • GPEI-Case