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Monitoring your private equity or venture capital portfolio is a key process that decodes what’s driving your fund performance. But such a simple idea isn’t so simple in practice – from understanding which fund performance metrics to capture, to capturing them on a regular basis, to organizing them for proper analysis and insight.
With the right tools to manage that data and a clear understanding of what private equity KPIs are effective for your funds, taking on the process is well worth the work. And monitoring your private equity portfolio companies is a fundamental part of the workflow. Read on for more about fund performance metrics, how to track them, some of the most common types of KPIs, as well as a downloadable list of private equity portfolio company KPIs.
What is a private equity KPI?
A private equity KPI is a key performance indicator, or a metric, which helps you monitor your portfolio and portfolio companies, and ultimately feeds into how your fund is performing overall.
You track the performance of your funds with KPIs like internal rate of return (IRR) or total value to paid-in capital (TVPI). But selecting useful KPIs to show the performance of individual underlying investments, aka private equity portfolio companies, does offer huge value and insight to your investment teams.
The KPI possibilities are endless, and not all fund performance metrics are relevant or useful depending on the industry focus of your funds or the way the portfolio companies operate. So it’s key to identify the ones that are essential to your portfolio monitoring and diligently pursue the collection of those.
How to track your private equity portfolio companies
Consistency is key to making use of your chosen private equity KPIs. Once a firm identifies the KPIs that are most relevant to its funds, they’ll want to collect this data on a regular schedule, most likely quarterly.
Capturing this data directly from leadership at the individual portfolio companies is ideal. While the optimal process involves a form for the portfolio company’s leadership to fill out and submit directly into a portfolio monitoring system, manually trascribed data still brings decreased risk for error if it lives in one centralized system rather than in multiple different static forms sent out to multiple colleagues. By controlling the homebase of this data, it is much less likely to be incorrectly transcribed and then analyzed for false insights.
Which brings us to the final key step to tracking your portfolio companies. With all the effort and time going into identifying what data to collect, collecting it, and managing it in appropriate ways, it’s essential to then analyze it and pull out useful insights.
Too often, firms collect this data because they know it’s the wise thing to do, but they fail to follow through on actually extracting value from it. The good news is that by trusting in a dedicated portfolio monitoring platform, analysis becomes simple, with an array of built-in or custom reporting abilities making portfolio company performance insights far more accessible.
Top private equity KPIs and fund performance metrics
We’ve covered what KPIs are and how you can go about tracking them. But what portfolio company KPIs are right for your funds? Here are some categories of fund performance metrics that private equity and venture capital managers should consider tracking:
Profitability
Perhaps the most obvious, portfolio company profitability KPIs – such as profit margin, return on assets, or return on equity – can be extremely helpful in understanding how each underlying investment is contributing to the overall performance of your fund. But while essential and to-the-point, they’re not the only portfolio management metric to lean on.
ESG metrics
ESG KPIs are a particularly popular area of emphasis for tracking portfolio companies and their performance. While metrics like greenhouse gas emissions might be the most obvious ESG themed metrics to track, a lot more goes into tracking ESG progress than just environmental elements. For example, gender balance on a company’s board or workplace safety, including the number of accidents that happen to employees on the job, are also examples of trackable ESG metrics.
Interested in ESG metrics? Download our ESG KPI List here
Risk
Risk metrics should aim to monitor the vulnerability of the portfolio company with figures such as number of past security breaches and total litigation payments. By keeping an eye to these metrics overtime, your teams will have a better idea of what changes might need to be made to protect the portfolio company from high-risk events that could affect performance and value.
Customer retention
Metrics such as number of new customers and average customer length in years can demonstrate beyond profit figures how strong a portfolio company’s performance and brand are. The better these figures are, the easier it is to project whether the portfolio company’s performance will stay on track for the remainder of the fund lifetime.
Staff analysis
In an age where talent scarcity feels like the new normal, staff analysis metrics like age breakdown, turnover rate, and retirement rate are especially relevant for projecting how well and how long a private equity portfolio company is capable of meeting customer demand and providing an adequate experience.
Tracking private equity portfolio companies with Allvue’s Fund Performance and Portfolio Monitoring
Allvue’s Fund Performance and Portfolio Monitoring solution provides private equity and venture capital managers with a dedicated platform for monitoring key private equity KPIs, including those surrounding their portfolio companies. The solution includes dozens of pre-built KPIs ready for tracking, but also provides the option for managers to add their own custom metrics to track.
Check out all the KPIs our solution can track by downloading our comprehensive list of private equity portfolio company metrics below.
Still want to know more? Reach out for a demo today.
