How to Evaluate the Performance of a Private Equity Fund

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Reach Alternative Investments
November 22, 2023
min read
How to Evaluate the Performance of a Private Equity Fund

How to Evaluate the Performance of a Private Equity Fund

When it comes to investing in alternative assets like private equity, having the ability to assess the performance of a fund is crucial. Given the exclusive nature of this asset class, making informed decisions requires an understanding of certain key factors.

What is Private Equity?

Private equity refers to the capital investment made into private companies or the buyouts of public companies with the intention to make them go private. Potential for high returns, portfolio diversification, and long-term investment horizon are some notable aspects of private equity investments. The businesses invested in are not listed on a publicly accessible exchange, which is why they are considered 'private.' For more detailed insights into the basics of private equity, head on to our Private Equity 101 guide.

What Factors Determine the Performance of a Private Equity Fund?

The performance of a private equity fund is primarily gauged through two key metrics – Internal Rate of Return (IRR) and Multiple of Invested Capital (MOIC). While IRR measures the fund's annualised effective compounded return rate, MOIC reflects the potential total value returned from the investment relative to the invested capital. Assessing a fund manager's expertise, track record, and sector-specific approach could potentially provide key insights into the possible future performance of a fund. Other factors, such as the exit strategy and the life cycle of the fund, could also play crucial roles in determining the performance of the fund.

Why is Due Diligence Necessary Prior to Investing in a Private Equity Fund?

Before you take the leap, rigorous due diligence is a must. This involves analysing the fund's past performance, understanding the risks, and reviewing the fund manager's strategies. It's important to remember that past performance is not a guarantee of future results. Therefore, potential investors should not rely solely on past profits but evaluate the overall strength and effectiveness of the management team. Find more about how to vet a Private Equity Fund from an Australian Perspective.

What are the Risks Involved With Private Equity Investments?

Understanding the risks is a pivotal part of making an investment decision. Investing in private equity funds could involve certain risks such as liquidity risk, due to the long-term nature of the investments, and leverage risk, as most private equity deals involve some level of borrowing. Additionally, the success of a private equity fund often heavily depends on the fund manager’s skills and expertise, introducing manager risk. Thus, it is essential to be aware and scrutinise these risks before deciding to invest.

How can Reach Alternative Investments Assist You in Your Private Equity Journey?

At Reach Alternative Investments, we aim to make it easier, better, and possibly safer for you to invest in top-tier private equity funds. By curating a selection of world-class private market funds, and creating a convenient Australian legal structure for local investors, we aim to assist you in building your private market portfolio right at your fingertips. Sign up now and consider investing intelligently with Reach. Learn more about Reach’s enabled private equity funds.

Interested in becoming a sophisticated investor under the terms of the Corporations Act 2001? Learn more about becoming a qualified investor with Reach.


Evaluating the performance of a private equity fund is a dynamic task that demands a holistic knowledge of the fund, the market, and the manager’s expertise. While the potential opportunity that private equity presents is compelling, the complexities involved highlight the importance of diligence and knowledge. Reach Alternative Investments offers its expertise and could help you navigate the potential of private equity investments.

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