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The concept of direct alpha is closely related to the KS PME as it uses the | ||
same method to calculate an IRR which is then compared to the fund’s IRR. | ||
However, the difference between KS PME and direct alpha method is that in | ||
direct alpha the under or out performance is quantified by calculating the | ||
compounded cash flows plus the fund’s NAV. | ||
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See also: | ||
- <https://en.wikipedia.org/wiki/Public_Market_Equivalent#Direct_Alpha> | ||
- <https://blog.edda.co/advanced-fund-performance-methods-pme-direct-alpha/> |
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Calculates the DPI (Distributions to Paid-In) for a set of cash flows. This is | ||
just the total distributions divided by the total contributions, with | ||
contributions coerced to be positive. | ||
Distributed to Paid-In Capital (DPI) is a term used to measure the total | ||
capital that a private equity fund has returned thus far to its investors. It | ||
is also referred to as the realisation multiple. The DPI value is the | ||
cumulative value of all investor distributions expressed as a multiple of all | ||
the capital paid into the fund up to that time. | ||
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Formula: DPI = Cumulative Distributions / Paid-In Capital | ||
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See also: | ||
- <https://www.moonfare.com/glossary/distributed-to-paid-in-capital-dpi> | ||
- <https://www.investopedia.com/terms/r/realization_multiple.asp> |
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KS PME represents a market adjusted equivalent of the Total Value to | ||
Paid-In-Capital (TVPI). KS PME is calculated by finding the future value of | ||
each contribution and distribution using the stock market index returns. | ||
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Formula: FV(Distributions) + NAV / FV(Contributions) | ||
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See also: | ||
- `ks_pme_flows` and `tvpi` functions | ||
- <https://en.wikipedia.org/wiki/Public_Market_Equivalent#Kaplan_Schoar_PME> | ||
- <https://blog.edda.co/advanced-fund-performance-methods-pme-direct-alpha/> |
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Use the Kaplan-Schoar method to re-scale the private equity flows to match the | ||
public market equivalents (PME) for comparison. This method works as follows, | ||
for each period, re-scale the amount as: amount * (pme_price_final_period / | ||
pme_price_current_period). Basically you are future valuing the amount to the | ||
final period based on the returns of the PME. | ||
public market equivalents (PME) for comparison. | ||
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This method works as follows, for each period, re-scale the amount as: | ||
`amount * (index[final_period] / index[current_period])`. | ||
Basically you are future-valuing the amount to the final period based on the | ||
returns of the PME. | ||
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See also: | ||
- <https://en.wikipedia.org/wiki/Public_Market_Equivalent#Kaplan_Schoar_PME> | ||
- <https://blog.edda.co/advanced-fund-performance-methods-pme-direct-alpha/> |
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The basic idea of Long Nickels method is that the cash flows of a VC fund i.e. | ||
contributions and distributions are invested in a stock market index and to | ||
generate a net asset value (NAV) at the end of each period. The last NAV is | ||
used to calculate the IRR and this IRR is the Long Nickels PME. | ||
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See also: | ||
- `ln_pme_nav` function | ||
- <https://en.wikipedia.org/wiki/Public_Market_Equivalent#Long-Nickels_PME> | ||
- <https://blog.edda.co/advanced-fund-performance-methods-pme-direct-alpha/> |
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mPME is similar to PME+ in the sense that it uses a scaling factor. However, | ||
mPME uses different scaling factors for cash flows at different time intervals. | ||
Thus, it attempts to improve the limitations of PME+ where a single coefficient | ||
λ is used to scale all distributions. | ||
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See also: | ||
- <https://en.wikipedia.org/wiki/Public_Market_Equivalent#Modified_PME> | ||
- <https://blog.edda.co/advanced-fund-performance-methods-pme-direct-alpha/> |
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The Multiple on Invested Capital (MOIC) measures the performance of an | ||
investment today relative to the initial investment. | ||
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Formula: (Realized investment + Unrealized investment) / Initial Investment | ||
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Unrealised value, also referred to as residual value (or NAV), is the total | ||
value of the remaining portfolio’s active investments that have not yet been | ||
liquidated. | ||
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See also: | ||
- <https://www.moonfare.com/glossary/multiple-on-invested-capital-moic> | ||
- <https://financestu.com/tvpi-vs-moic/> |
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PME+ discount every distribution by a factor computed so that the NAV of the | ||
index investment matches the NAV of the fund. The PME+ returns an IRR value of | ||
discounted distributions. | ||
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See also: | ||
- `pme_plus_flows` and `pme_plus_lambda` functions | ||
- <https://en.wikipedia.org/wiki/Public_Market_Equivalent#PME+> | ||
- <https://blog.edda.co/advanced-fund-performance-methods-pme-direct-alpha/> |
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Use the PME+ method to re-scale the private equity flows to match the public | ||
market equivalents (PME) for comparison. This method works as follows: create | ||
an equation that sets the nav equal to the contributions future valued based on | ||
an equation that sets the NAV equal to the contributions future valued based on | ||
the PME returns, minus the distributions multiplied by a scalar (lambda) future | ||
valued based on the PME returns. | ||
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This will look like (for two periods with a contribution and distribution in each): | ||
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nav = c1 * px_final/px_1 + c2 * px_final/px_2 | ||
- d1 * lambda * px_final/px_1 - d2 * lambda * px_final/px_2 | ||
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``` | ||
nav = c[1] * index[-1]/index[1] + c[2] * index[-1]/index[2] | ||
- d[1] * λ * index[-1]/index[1] - d[2] * λ * index[-1]/index[2] | ||
``` | ||
Solve for lambda so that the two sides of the equation are equal. Then multiply | ||
all the distributions by lambda to re-scale them. | ||
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See also: | ||
- <https://en.wikipedia.org/wiki/Public_Market_Equivalent#PME+> | ||
- <https://blog.edda.co/advanced-fund-performance-methods-pme-direct-alpha/> |
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Find λ used in PME+ method. | ||
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Formula: λ = (Scaled Distributions - NAV) / Scaled Contributions | ||
Where: | ||
- Scaled Distributions = sum(distributions * index[last] / index[current]) | ||
- Scaled Contributions = sum(contributions * index[last] / index[current]) | ||
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See also: | ||
- `pme_plus_flows` function | ||
- <https://en.wikipedia.org/wiki/Public_Market_Equivalent#PME+> | ||
- <https://blog.edda.co/advanced-fund-performance-methods-pme-direct-alpha/> |
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Calculates RVPI (Residual Value to Paid-In) for a set of cash flows. This is | ||
the total residual value (NAV) divided by the total contributions, with | ||
contributions coerced to be positive. | ||
Residual Value to Paid-In Capital (RVPI) is a term used to measure the residual | ||
value (NAV) of a private equity fund as a multiple of the capital paid in by the | ||
investors. The residual value is the current fair value of all assets held by | ||
the fund and the paid-in capital by the investors is the total of all | ||
contributed capital up to that time. | ||
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Formula: Residual Value / Paid-In Capital | ||
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See also: | ||
- <https://www.moonfare.com/glossary/residual-value-to-paid-in-capital-rvpi> | ||
- <https://financestu.com/rvpi/> |
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Total Value to Paid-In Capital is a measure of the performance of a private | ||
equity fund. It represents the total value of a fund relative to the amount of | ||
capital paid into the fund to date. The total value of a fund is the sum of | ||
realised value (all distributions made to investors to date) plus the | ||
unrealised value (residual value of investments) still held by the fund. | ||
Total Value to Paid-In Capital (also known as the 'Investment Multiple') is a | ||
measure of the performance of a private equity fund. It represents the total | ||
value of a fund relative to the amount of capital paid into the fund to date. | ||
The total value of a fund is the sum of realised value (all distributions made | ||
to investors to date) plus the unrealised value (residual value of investments) | ||
still held by the fund. | ||
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Formula: (Distributed Capital + residual Value) / Paid-In Capital | ||
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See also: | ||
- <https://www.moonfare.com/glossary/total-value-to-paid-in-capital-tvpi> | ||
- <https://financestu.com/tvpi-vs-moic/> |
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{% include head.html %} | ||
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## DPI | ||
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{% include_relative ./_inline/pe/dpi.md %} | ||
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## RVPI | ||
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{% include_relative ./_inline/pe/rvpi.md %} | ||
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## TVPI | ||
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{% include_relative ./_inline/pe/tvpi.md %} | ||
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## MOIC | ||
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{% include_relative ./_inline/pe/moic.md %} | ||
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## LN-PME | ||
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{% include_relative ./_inline/pe/ln_pme.md %} | ||
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## LN-PME NAV | ||
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{% include_relative ./_inline/pe/ln_pme_nav.md %} | ||
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## KS-PME Flows | ||
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{% include_relative ./_inline/pe/ks_pme_flows.md %} | ||
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## KS-PME | ||
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{% include_relative ./_inline/pe/ks_pme.md %} | ||
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## mPME | ||
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{% include_relative ./_inline/pe/m_pme.md %} | ||
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## PME+ Flows | ||
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{% include_relative ./_inline/pe/pme_plus_flows.md %} | ||
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## PME+ Lambda | ||
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{% include_relative ./_inline/pe/pme_plus_lambda.md %} | ||
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## PME+ | ||
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{% include_relative ./_inline/pe/pme_plus.md %} | ||
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## Direct Alpha | ||
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{% include_relative ./_inline/pe/direct_alpha.md %} | ||
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