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Fund performance is often thought to be the acid test of fund management, and in the institutional context, accurate measurement is a necessity. For that purpose, institutions measure the performance of each fund (and usually for internal purposes components of each fund) under their management, and performance is also measured by external firms that specialize in performance measurement. The leading performance measurement firms show how funds in general performed against given indices and peer groups over various time periods. In a typical case (let us say an equity fund), then the calculation would be made (as far as the client is concerned) every quarter and would show a percentage change compared with the prior quarter (e.g., +4.6% total return in Australian dollars). This figure would be compared with other similar funds managed within the institution (for purposes of monitoring internal controls), with performance data for peer group funds, and with relevant indices (where available) or tailor-made performance benchmarks where appropriate. The specialist performance measurement firms calculate quarterly and yearly data and close attention would be paid to the (percentile) ranking of any fund. Generally speaking, it is probably appropriate for an private equity firm to persuade its clients to assess performance over longer periods (usually for venture capital private equity where the capital offering is over AU$300 million these funds are fixed to a ten year period) to smooth out very short term fluctuations in performance and the influence of the business cycle. This can be difficult however and, industry wide, there is a serious preoccupation with short-term numbers and the effect on the relationship with clients (and resultant business risks for the institutions). An enduring problem is whether to measure before-tax or after-tax performance. After-tax measurement represents the benefit to the investor, but investors' tax positions may vary. Before-tax measurement can be misleading, especially in regimens that tax realized capital gains (and not unrealized). It is thus possible that successful active managers (measured before tax) may produce miserable after-tax results. One possible solution is to report the after-tax position of some standard taxpayer. Which is why many fund managers at private equity firms will look to re-invest or rollover and investments reaching maturity or use a pay out system whereby the agreed percentage yield is paid out initially with subsequent timed returns of portions of the principal investment to lower capital gains liabilities. Private Equity Firm is essential in any business nowadays. If you are looking for one, then you can find the best from many private equity firms in the market. Click here for more details.
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