GPs Have Many Makes, Models: PERACS Value Bridge Driver Can Help Identify Them

The private equity industry is in the midst of a fundraising boom. Currently 2,209 private equity funds are seeking $811 billion from investors, an all-time high according to data from Palico. So far this year, investors have committed over $80 billion to funds, a 50%+ increase over last year, according to Forbes.

While the opportunities are numerous, it turns out that investors are pickier than ever. Potential limited partners are paying even greater attention to differentiated attributes of fund managers and are taking a closer look at where they are creating the value in their investments. According to a recent survey from Private Equity International (“PEI”) that we’ve reported on, investors voted ‘understanding and influencing drivers of returns’ as the top concern, highlighting the fact that LPs are increasingly interested in measuring, understanding and replicating such performance in their own portfolios.

The PERACS Value Driver Bridge demonstrates how different value drivers reflect different strategies. A refinement of the widely-used “Value Attribution” analysis, the PERACS Value Driver Bridge quantifies value drivers on an annualized basis and includes currency effects. In addition, it separates revenue growth from margin improvements as drivers of EBITDA growth. It provides LPs with an in-depth understanding of the GP’s strategy and value creation skills serve as basis of assessment of likely future performance.

Take a look at the examples below. Where would GPs in your portfolio fall?

Peracs Chart 1

 

 

 

 

 

 

 

Peracs Chart 2

 

 

 

 

 

 

Peracs Chart 3

 

 

 

 

 

 

 

Peracs Chart 4

 

 

 

 

 

 

 

 

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