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RATZ IRR: Performance Measurement in the Absence of Cash Flow Data

John Renkema, Rob van den Goorbergh and Carlos Garcia Rivas
The Journal of Alternative Investments Fall 2017, 20 (2) 51-63; DOI: https://doi.org/10.3905/jai.2017.20.2.051
John Renkema
is a senior portfolio manager in private equity at APG Asset Management in Amsterdam, the Netherlands
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Rob van den Goorbergh
is head of solutions at APG Asset Management in Amsterdam, the Netherlands
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Carlos Garcia Rivas
is an investment manager in private equity at PGGM in Zeist, the Netherlands
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Abstract

In this article, the authors introduce a methodology to estimate portfolio internal rate of return (IRR) from portfolio constituents when only the IRR and the money multiple of the constituents are available. They call this methodology the reconstructed average time zero (RATZ) IRR. A deviation from the portfolio’s true IRR will remain because not all cash flow information is available. They derive an analytical expression of the difference between the RATZ IRR and the portfolio IRR. The authors provide empirical evidence about the quality of the estimator using a proprietary dataset from a large private equity investor. Furthermore, by applying the RATZ IRR, they present an overview of the portfolio construction and performance of the private equity programs of U.S. pension funds.

TOPICS: Real assets/alternative investments/private equity, portfolio construction, performance measurement

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The Journal of Alternative Investments: 20 (2)
The Journal of Alternative Investments
Vol. 20, Issue 2
Fall 2017
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RATZ IRR: Performance Measurement in the Absence of Cash Flow Data
John Renkema, Rob van den Goorbergh, Carlos Garcia Rivas
The Journal of Alternative Investments Sep 2017, 20 (2) 51-63; DOI: 10.3905/jai.2017.20.2.051

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RATZ IRR: Performance Measurement in the Absence of Cash Flow Data
John Renkema, Rob van den Goorbergh, Carlos Garcia Rivas
The Journal of Alternative Investments Sep 2017, 20 (2) 51-63; DOI: 10.3905/jai.2017.20.2.051
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  • Article
    • Abstract
    • RATZ IRR
    • QUALITY OF THE RATZ IRR
    • COMPARISON OF U.S. PUBLIC PENSION PLANS’ PRIVATE EQUITY PORTFOLIOS
    • CONCLUSIONS ON THE PERFORMANCE OF THE U.S. PUBLIC PENSION SCHEMES
    • APPENDIX A
    • APPENDIX B
    • Footnotes
    • REFERENCES
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