Private Equity

Timothy Peterson

To those in traditional asset management and performance measurement, private equity is one of the most obscure asset classes. This chapter seeks to unravel the mysteries perceived by those not familiar with this type of investment.

First, we will cover partnerships, as they are the building block of private equity strategies. With respect to private equity strategies themselves, they number far fewer than those of hedge funds, and are more easily grouped into one of five or six categories. The nature of closed-end fund investing allows for additional performance metrics, and we explain the four most common ratios (or multiples) used. These ratios are also commonly used in real estate. We also overview three different performance methodologies used to calculate return. Lastly, we review industry groups and standards focused on private equity.

PARTNERSHIPS

In alternative investment management, the primary vehicle of choice is the limited partnership. In the US, establishment of partnerships is governed by state law, which relies heavily on its own statutes and common law. Such laws generally follow the Uniform Partnership Act, the Uniform Limited Partnership Act and the US