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How are private equity returns generated and measured?

Curious about private equity

How are private equity returns generated and measured?

Private equity returns are generated through various strategies employed by private equity firms such as leveraged buyouts, growth capital, and distressed investments. These strategies aim to improve the operations and financial performance of the acquired companies, increase their value, and eventually exit the investments at a profit.

Private equity returns are measured using several performance metrics, including internal rate of return (IRR), multiple of invested capital (MOIC), and cashoncash return. IRR measures the annualized rate of return on an investment, while MOIC measures the total return on investment as a multiple of the original investment amount. Cashoncash return measures the cash flow generated by the investment relative to the amount of capital invested.

Private equity returns can vary widely depending on the strategy, the market conditions, and the performance of the acquired companies. It is important for investors to carefully evaluate the track record and expertise of private equity firms before investing to maximize their chances of generating favorable returns.

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