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...

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...

The article reference below highlights an interesting development. I happen to know that Morgan Stanley Private Equity Asian team is much more nervous about the Volcker rule and does not rule out the possibility of having to become independent. JPMorgan, on the other hand, seems to be on prowl to acquire HF/PE firms. I think there are two points that are worth mentioning in connection with these differences: 1. JPM is much more of a deposit holding bank than MS. As such, it is likely they will be less affected by any looming regulation. 2. Even more importantly IMHO, Brazil is increasingly catching the headlines and claiming the spotlight, in a sense becoming "the next China". And in many respects, for a good reason: it's much less reliant on exports (and when it comes to oil, on imports), the fundamentals look robust, the GDP growth is accelerating and the inflation has been within a reasonable range for years. I have never had the pleasure of talking to a Brazilia...

The following link to an FT article is an interesting piece of reading. I follow with some comments in Russian. Даже не будучи специалистом в российском законодательстве, и зная об особенностях национального бизнеса только из комментариев бывших одноклассников и знакомых бизнесменов, сразу вижу в этом проекте легко узнаваемый шаблон: президент сказал "надо!", и все бросились поднимать "наш ответ Силиконовой Долине". Начинание похвальное, но оно игнорирует принципиальное отличие Калифорнии от Подмосковья: отлаженную правовую базу. Какие бы там не создавались "зоны" и "технопарки", до тех пор пока регистрация нового предприятия исчисляется не в днях, а в месяцах, никакой "Силиконовой Долины" в России не будет. И как говорится, как бы я хотел, чтобы я был не прав! US fund set to invest in Russian tech hub : "Siguler Guff, the private equity group, will invest $250m in a high-technology hub outside Moscow" ■