MJ Hudson has developed a new tool for Limited Partners that can be used on their own internal systems, to calculate two key MJ Hudson PERACS metrics: performance measurement and the risk profile.
MJ Hudson is a leading provider of independent track record and performance certification services for alternative investments, driven by more than a decade’s pioneering research developed by the company’s founder, Professor Oliver Gottschalg.
The company’s proprietary PE Due Diligence Analytics™ is an exceptionally powerful method for identifying key attributes of performance, risk profile and strategic differentiators with an innovative statistical benchmarking algorithm. A comprehensive set of standardized, quantitative metrics is generated at the deal, fund and portfolio level.
General Partners (GPs) use MJ Hudson to enhance fundraising effectiveness and efficiency, crystalizing the firm’s competitive positioning and ongoing investor communication. Limited Partners (LPs) use MJ Hudson to provide unique perspectives into portfolio risk and return profile with applications in portfolio design, investment decision support and performance optimization.
The key metrics included in the MJ Hudson PERACS Calculator for Limited Partners includes performance measurement and the risk profile:
1. Performance (MJ Hudson PERACS Alpha and MJ Hudson PERACS Rate of Return)
- Public-Market Equivalent (PME) Benchmarking Perspective
- Enhanced Performance Measurement, avoiding issues with IRR Methodology
- Comparison to Benchmarks
2. Risk Profile (MJ Hudson PERACS Risk Curve)
- Assessment of portfolio risk based on historical return distribution across the portfolio
- Graphical representation based on intuitive curve inspired by “Lorenz Curve”
- Comparison to Benchmarks
These calculations help LPs in two related areas: (a) the analysis of their own portfolios with underlying funds for monitoring purposes and (b) the due diligence of a GPs track record with funds and underlying deals. We have built two versions of the calculator to offer benchmarking functionalities in each of these areas.
The user has to provide only a simple set of cash flows (Fund name, date, cash flow amount, cash flow type) in a standard Excel format as input and can perform the risk and return calculations above. The tool provides the results in numerical and graphical format and the user can manage the output using standard pivot-tables in MS Excel.
Importantly, the results can be flexibly “slices and diced” according to user preferences. To this end, a set of deal- or fund-level characteristics (vintage year, stage, region, industry, etc.) can be either sourced automatically from 3rd party databases or entered manually by the user.
Performance Results in Table Format
Fund Quartiling Results in Table Format*
*Analysis based on publicly available data