engleski

The Impact of the Internal rate of Return (IRR) as a Benchmark Model for Value Creation in Private Equity

The contribution of performance ratios on the capital markets goes along with the inconsistency of investors' expectations and deregulated premium of return for different asset classes on alternative markets. In the introduction part of the paper, the role of the multiple ratios related is highlighted as an applicable standard in the industry. In practice, performance fees, often derived by general partners, do not always take into consideration the concept of internal rate of return (IRR), as a benchmark model for value creation in private equity investors. Because of that, the multivarious conditions defined in the statute or the rule book of the equity entities should be examined under value creation perspectives. Conversely, from the perspective of prominent fund investors, there should be taken into calculation the standard of a carry for unrealised investments, market timing, utilisation of financial leverage, operational excellence, and residuals. Taking into consideration the perspectives above, authors of the paper have extracted the internal rate of return as a consistency ratio for four different horizons (a year, three years, five years and ten years) with the benchmarks from the Preqin Pro database. The authors intend to reassess alternatives according to best practices in the field of alternative asset class investments while offering alternative benchmarking methods as a measure of ranking fund performance via internal rate of return. In the discussion part of the paper, the model aims to define which alternative assets class or mechanism is affected by endogenous shocks (deregulation) or exogenous opportunities (consolidation) without going into the details. In the conclusion part, the authors shall summarise all useful findings related to the area of interest and studies in science and business.

alternative asset ; endogenous shocks ; exogenous shocks ; internal rate of return , opportunity cost

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