Duff & Phelps Value Attribution Whitepaper Series: Measuring Alpha for Private Equity

Manager selection is critical to private equity returns, and a variety of analyses are often employed to quantify and improve the selection process. These include analysis of returns by quartile, public market equivalent (PME) analysis and the conventional attribution analysis, often referred to as the “value bridge.” These methods share a common goal of increasing transparency regarding performance and returns, but the value provided by this transparency is often quite limited.

Investors often seek to measure alpha, or the excess return relative to a relevant benchmark, to identify managers that have outperformed their respective benchmarks and can potentially repeat their outperformance with future investments. Alpha is especially hard to measure in the context of private equity given the challenge of benchmarking portfolio company performance and isolating organic growth.

We define created-value alpha (Alpha) as organic value creation on a company-specific outperformance basis relative to an appropriate industry benchmark. Unfortunately, the value bridge and other methods described above do not isolate or identify Alpha, and to accurately identify and measure Alpha, a more robust attribution framework is required.

Duff & Phelps Value Attribution Whitepaper Series: Measuring Alpha for Private Equity 2019-05-07T00:00:00.0000000 /insights/publications/valuation/measuring-alpha-for-private-equity /-/media/assets/images/publications/featured-images/2019/valuation/measuring-alpha-for-private-equity.ashx publication {B062D54C-1425-4A04-8F9F-95EA14068E6D} {E010DCD9-B7BA-4B98-9F3C-A51506B5C1D8} {5BF06FE7-E88C-4627-A701-3E042F076F1F} {65648E61-ED08-40DF-AEE6-DB90ABD49289} {B9547F83-DAD8-4427-AFD7-9E361891FD9C} {4FD07AAC-FB9A-4820-BEF0-FDACDF861948}

Related Services

Valuation Advisory

Valuation and consulting for financial reporting, federal, state and local tax, investment and risk management purposes.

Valuation Advisory

Valuation Services

Objective valuations for financial reporting, tax and management planning purposes.

Valuation Services

Alternative Asset Advisory

Transparent valuations of illiquid investments and complex securities and liquidity solutions through secondary market transactions.

Alternative Asset Advisory

Portfolio Valuation

Alternative investment valuation for private equity and hedge funds.

Portfolio Valuation

Tax Valuation

Tax valuation and consulting in connection with transactions, compliance, planning and disputes.

Tax Valuation

Insights