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China private equity still an attractive long-term strategy

Against the backdrop of the recent extreme volatility in China’s public equity markets, as well as its currency devaluation and a number of downward GDP revisions, it’s no wonder that investors’ confidence is shaken, with some wondering if it’s time to hang up and exit the market.

On the ground in China, many have formed the view that Chinese private equity returns have been lower and riskier than returns in their developed market counterparts.

Indeed, when comparing the quarterly and annual performance of global private equity with returns from Chinese private equity, the latter has been significantly more volatile over the same period. During the 18 months before the first quarter of 2015, this volatility translated into higher returns relative to the global industry while Chinese private equity underperformed during most of 2012 and early 2013.

Yet when these volatile short-term returns are assessed across the life of a fund, we see a smoothing effect to performance and a sharp reduction in volatility, challenging conventional wisdom and debunking the myth that China may be losing its attractiveness as a top private equity destination.

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PE HUB - Are LPs Moving away from the quartile ranking?

by Mark Boslet

General partners like to say their funds are in the top quartile, but perhaps that isn’t enough anymore.

With the difference between the top of a quartile and its bottom 10 percent to 12 percent or more, the difference between being number one on the list and, say, number 15 can be considerable.

This seems to be the motivation behind a trend observed by data analytics firm eFront. Over the past eight to 10 months, LPs have increasingly been asking the firm for decile ranking, not just quartile ones, said Rishi Kotecha, product manager for eFront’s Pevara metrics product for private equity.

“It’s more than talking about it,” said Kotecha. “Now they are requesting it.”

While the trend is small at present, it may be telling. LP scrutiny of funds is on the rise as a favorable tide in the U.S. and other financial markets has lifted distributions and sent more funds back for new money.

So far the interest in decile rankings seems largely confined to U.S.-based LPs and, to a lesser extent, those in Europe. Most are investors, or potential investors, in buyouts and venture funds. But it might just be a matter of time before more ask for it.

The amount of interest is small, but increasing, said Kotecha, whose firm gathers performance and cash flow data on funds from LPs and offers access through an analytics tool.

PE advisers debate benchmarking challenge

By Paul Hodkinson

Advisers to the private equity industry are joining calls for a new and better approach to benchmarking investment performance.

Writing in this week’s edition of Private Equity News, Jeremy Hocter, head of product management at Pevara – part of fund administrator eFront – said measuring the performance of private equity funds presented investors with a “significant challenge”.

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Here is a new way to provide much-needed transparency for private equity investors

For years, both the public and private markets have relied on benchmarks to evaluate investment performance, an essential practice that helps asset managers make accurate investment and divestment decisions.

In the more familiar public markets, benchmarking information is readily and instantly available. However, as asset managers increasingly look to private equity to secure returns no longer possible from traditional asset classes, they are quickly learning that this is not always the case. In this market, the benchmarking data available to measure the performance of certain types of fund is limited.

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Pevara COO Paul DiBlasi considers PE benchmarking techniques

For as long as the private equity industry has been in existence, Limited Partners (LPs) have relied on benchmarks to help them evaluate the performance of their investments. However, while such practices are imperative for making accurate investment and divestment decisions, there has always been a gap in the LP tool-kit when it comes to benchmarking certain groups of funds.

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Benchmarking the benchmarks

As the private equity industry starts to explore uncharted territory, Jeremy Hocter at Pevara looks at the critical role played by benchmarking and asks whether current thinking is up to the task or if a new approach is required.

After the challenges of the last three years, private equity is warming up. 2011 has seen a number of large PE firms ramp up their fund-raising. More than half of General Partners (GPs) have been projected to raise funds this year.

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Empowering Limited Partners

From the mid-90s to 2007, there was no question that employing middle men for due diligence and introductory services paid dividends in the private equity industry. It was widely acknowledged then – as it is now – that the illiquid nature of the asset class meant that LPs’ due diligence process for selecting a fund was particularly rigorous and challenging. Larger institutions had plenty of money to disperse and their investment committees valued the assurance of recognized third parties providing recommendations.

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