The Layers of PERACS Alpha: What is Your GPs’ Skill Set?

If investors really want to get to the bottom of how their general partner performs, gathering an historical breakdown of the firm’s alpha will give investors a clear understanding of a GP’s underlying ability to generate (and regenerate) value.

The PERACS Alpha can be decomposed into a multifaceted performance metric that provides a deeper understanding of performance than other metrics such as IRR or MOIC.

In order to do so, PERACS Alpha breaks down GP performance into a number of distinct components:

  • Effect of sector choices
  • Delevered Alpha
  • Effects of different financial leverage

PERACS’s Oliver Gottschalg discussed Alpha’s components in depth at the Annual Conference of LPEQ, the Listed PE Association, seen here:

With this understanding, investors are able to find out what each private equity firm’s skill set might be. Are they good at picking sectors? Are they good at picking fundamental out-performance? Are they able to use leverage to boost their skill set effectively? Where will your GP succeed?

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