Weekly round-up: IRR comes under fire

Amy King
23 May 2014

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IRR a flawed performance measure; changes afoot in the Spanish market; the forces driving the Nordic industry... Here is your weekly round-up of industry analysis provided by unquote"

unquote" explored growing criticism of IRR as a performance measure, which is no longer a solely academic concern. According to Riverside partner Karsten Langer: "The main issue with IRR is if there is a short payback period (the investment was flipped), it can show as a high IRR even on a low cash multiple – so it's still a low return despite a high IRR. IRRs can distort returns." And LPs are increasingly taking the view of IRR as a flawed metric, favouring instead a combined view of IRR, returns multiples and holding periods. But whatever the preferred metric, professionals across the industry agree that the most important measure of fund performance is obtained via uninterrupted communication between GPs and LPs during the fund life cycle.

unquote" spoke to Carlos Lavilla, president of Spanish industry association Ascri, about the changing nature of the Spanish private equity market. From proposed changes to relieve regulatory constraints on Spanish pension funds' commitments to local GPs, the need for hybrid instruments to support cash-strapped SMEs and the influx of international interest in Spanish opportunities, changes are afoot in the market.

In the unquote" Nordic Report 2014, the editorial team interviewed LPs, investigated market sentiment and conducted statistical analysis of the local market. After a two-year slowdown in deal volume, the recent verdict reached with the Nordic Capital case in late December has revived fallen optimism, with strong hopes for the remainder of 2014. Recent developments have seen the opening of the corporate bond market and the reopening of the IPO window, releasing new sources of capital and flexibility. Click here to access the comprehensive report.

That's all from me this week but if you have any comments on this week's analysis, please send your thoughts to amy.king@incisivemedia.com.

You can continue to follow me and the rest of the unquote" team via @unquotenews for all the latest private equity and venture capital updates, and of course on unquote.com.

Amy King
News Editor, unquote"