Value Creation

Calculating the “strategic overlap score” between two PE funds

  • Measure the percentage of activity (based on the investment volume and the # of deals) in each “strategic cell” for each PE fund;
  • Calculate the ‘strategic overlap’ for each pair of PE funds as the sum of joint activity (i.e. the minimum of the percentages invested in a given strategic cell by both funds) over all strategic cells;
  • A strategic overlap of “1” means that a GP invests exactly like the average PE firm – a score of “0” indicates that no other firm makes similar investments.

Identification of relevant peer funds based on “strategic overlap score”

  • “Comparable” funds that should be benchmarked against each other can then be derived as a function of the “strategic overlap score”;
  • For example, we consider funds as “Relevant Peers” whenever their “strategic overlap score”(by investment volume) exceeds 15% – and consider the degree of “competitive overlap” in the calculation of the benchmark.

The “Relevant Peer Benchmark” (“RPB”) for a given fund is the average performance of all its “Relevant Peers”, weighted by their “strategic overlap score”