Your Benchmark is Only as Good as the Data Behind It

Dr. Gottschalg has long been a proponent of understanding the challenges in employing private equity’s traditional performance metrics. As with all metrics, those used in PE are ultimately only as good as the data underlying their calculation. There are a number of private equity data providers – familiar to all of us – each employing different sourcing strategies, methodologies, categorizations and quality controls and inherent biases that can appear in the data collected. When used in benchmarking the depth of these massive data pools can be very powerful, but these different data sets can skew outcomes in specific ways.

In an EMPEA webcast, Dr. Gottschalg and a panel of experts discuss how to address the challenges of traditional data sources and their use in performance benchmarking for private equity.

According to Dr. Gottschalg, the best way to ensure quality of data is to peer through fund or firm data to the cash flows associated with underlying deals. This isn’t always possible, but where data related to the underlying assets is not available, PERACS has often employed sophisticated algorithms to create greater transparency. Understanding performance data on this granular level can add a level of insight into performance and open to the door to “Relevant Peer Benchmarking,” a methodology of understanding performance against relevant firms and funds engaged in similar investing.

Limited partners often find themselves in an endless pursuit of a truly objective performance metric. PERACS’ methodology is uniquely tailored to the kind of performance comparison that LPs must conduct when making investment decisions that is ultimately comparative in nature.

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