Guidelines

The following considerations and methodologies are to be used when determining performance measures:

Unitised basis versus NAV basis

In some countries, the performance of vehicles may be reported at a unit level. The Guidelines have been developed on the basis that performance has been determined on an aggregate NAV and cash flow basis.

Dates of cash flows

Dates used for performance calculations should be based on the dates of cash flows between investors and the vehicle as determined for accounting purposes. As a minimum, annual cash flows should be used, but it is now common to use higher frequencies such as quarterly, monthly or daily cash flows, especially for open end vehicles. For capital calls, the deadline of the capital call should be used.

Open end vehicles are subject to potentially constant in- and out-flows of capital. To accommodate for the large flows of capital, cash flows can be rolled up periodically, ideally on a monthly basis to the end of each month.

In the case of distributions for unitised vehicles, the declared date should be used. Closed end vehicles should apply the dates where cash flows are called or distributed to investors. The date should reflect the effective date for capital calls when the capital should be paid in and for distributions when the capital was paid out by the vehicle.

Fees

Performance measures are computed net of all fees and any materialised carried interest (or any other kind of performance fee) and forecasted future (provisions for) carried interest payments.

However, fees charged to investors as a result of the redemption of units or exit of the investors should not be considered when they are earned by the investment managers rather than the vehicle. Even though not required, performance measures may also be computed gross of management fees and carried interest payments.

When fees are charged to investors outside the vehicle, performance measures should include these fees as if the fees had been billed directly to/inside the vehicle.

Composites

To illustrate the combined performance of multiple vehicles, composite performance may be presented, combining the performance of each vehicle in a standardised way over time.

Investment managers may consult other industry performance guidelines such as GIPS for further guidance on composites.

Grouping criteria

The term ‘grouping’ is used to describe the process of aggregating/disaggregating two or more vehicles to evaluate performance using the time-weighted return.

To ensure fair representation of composite performance, vehicles included in the same composite must share one or more common attributes.

Composites should be defined by common attributes. A suggested hierarchy of grouping criteria is provided below:

• Style (please refer to the INREV Style classification paper, not investment manager defined);
• Structure (open vs closed end);
• Strategy;
• Points of reference; and
• Leverage

For closed end vehicles, composite performance should preferably be defined by the combination of vintage year and one of the above-mentioned attributes.

Further considerations for multiple computations

Some vehicles have the ability to recycle capital during the investment period (to reinvest returned equity capital). For equity multiples calculation purposes, any distributions that are included as a return of equity or return on equity for the purpose of the calculation (‘nominator’) should, if reinvested (recycled), also be added to the amount of drawn capital (‘denominator’) to give a fair reflection of the true ratio of returned equity to investors. This should be the case whether the recycled equity is actually, distributed and recalled, or reinvested directly by the investment manager without physically distributing back to investors (to eliminate the back-and-forth flow of cash).