iBanker.jp

Quite predictably, PE industry was not agreeable to the report written by The Centre for the Study of Financial Innovation I mentioned in my post yesterday (see: IRR is not a perfect measure of PE investment returns. So what? ). The article referenced below describes the response by Private Equity Council. Turns out, the report was actually referring to comparing the performance of public and private equity. I have some experience of making similar comparisons, and must admit they are a very tricky business. This is not an apples-to-apples comparison. This is not even apples-to-oranges, it's more like apples-to-apple-jam comparison. Technically, you can run the numbers, and they may or may not be in favor of private equity, but investment in private securities is not only about the level of return. It is also about know-how transfer, liabilities duration match and many other things. Unfortunately, I did not have the chance to read to full report, but my impression is that Mr. Pet...

Quote "China Investment Corp, the country’s $300bn sovereign wealth fund, this week announced its latest “worldwide” recruitment drive with 64 positions advertised. [...] The jobs on offer range from secretarial staff and human resources managers – “must be Chinese Communist Party member” – to country analyst in the international co-operation department – “must be good at keeping secrets”." Unquote   Ful article can be found here: Party faithful, your sovereign wealth fund needs you ■

The article titled  IRR as performance measure comes under fire describes a report that criticizes IRR as a measure of private equity returns. This sort of criticism is nothing new. It is true that there is an unrealistic assumption of compound returns underlying the PE IRR calculation, this limitation is widely known by the practitioners. The real question is: so, what are the implications? It is not common to compare PE returns to say publicly traded equity, or bonds using IRR. The metric is more often used to compare performance of one PE fund to another, and as these IRRs are calculated under the same assumptions, the numbers, while not entirely accurate, are comparable. They provide a practicable tool to compare investment returns across the asset class. Another problem, which is not mentioned here, is the risk of having multiple mathematically valid IRRs when making the calculation. This can happen when several cash flows are negative, positive, and then negative again...

Mercer put together a great report on Life Settlements, dated April this year, and I had the opportunity to obtain the original report that goes for 90 pages of Power Point slides. Very detailed, to the point and unbiased, it makes an excellent background reading. The report is not publicly available, but an 8 page summary can be found here . Another source of information I have recently acquired is the Life Markets: Trading Mortality and Longevity Risk with Life Settlements and Linked Securities . This is a collection of articles by market practitioners, and therefore has some natural bias in it, but it is well-structured and contains wealth of information. So much to read, so little time... ■

Below is the link to an article on Economist.com, which highlights a possible shift in the way domestic institutional investors treat JGBs. For better and for worse. http://www.economist.com/node/16593589?story_id=16593589&fsrc=rss ■