The Complete List of Strategy KPIs for Private Equity

It’s important with any organisation to be strategic and focused with clear goals and targets, and no less so in Private Equity.

Your strategy, or the strategies for the portfolio companies, should hold the important objectives and strategic goals and you need to carefully track your or their progress against strategy. Let’s take a look at some Strategic KPIs / Strategic Metrics or OKR options relevant to Private Equity:

Add-on Acquisitions per Portfolio Company: This KPI is used mainly in buy-and-build strategies to measure the average number of add-on acquisitions per portfolio company, indicating the growth via acquisitions.

Capital Calls Timing and Frequency: This KPI measures the regularity and predictability of capital calls, which can impact the cash management and return profile for LPs.

Capital Deployed: This represents the total amount of capital invested in portfolio companies over a certain period. It gives a sense of the fund’s activity level and pace of capital deployment.

Capital Under Management: This includes both committed and invested capital. It’s a measure of the total amount of capital that the private equity firm manages. It reflects the size and scale of a private equity firm.

Carried Interest: This is the share of the profits of an investment or investment fund that is paid to the fund’s manager, above the amount contributed by the manager to the fund.

Cash on Cash Return: This is the ratio of the distributions received from a private equity investment to the capital committed.

Co-investment Percentage: This is the amount of the investment that the general partner co-invests alongside the limited partners. A higher co-investment percentage aligns the interests of the general partners with the limited partners.

Company Culture Score: This measures the strength of the portfolio companies’ cultures, often via employee surveys. It can provide insight into employee satisfaction, company morale, and, indirectly, productivity and employee turnover.

Cost per Deal Sourced: This measures the cost-effectiveness of the deal sourcing process, which includes expenses associated with research, travel, and personnel among other things.

Cross-Fund Investments: This KPI refers to situations where a private equity firm uses more than one of its funds to invest in a company. It could be relevant in understanding the firm’s investment approach and risk diversification.

Deal Abandonment Rate: This measures the proportion of potential deals that a firm decides not to pursue after initial due diligence. A higher rate might indicate a more cautious and selective approach to investments.

Deal Closing Ratio: This measures the number of deals that reach closing as a percentage of the total number of deals that entered due diligence. It is an indication of the efficiency and effectiveness of a PE firm’s due diligence process.

Deal Execution Speed: The amount of time it takes from the initial introduction to a deal to the final closing. This can indicate the efficiency and effectiveness of a PE firm’s deal-making capabilities.

Deal Origination: This metric represents the number of new investments or deals a private equity firm has been able to originate over a period of time. High deal origination often indicates a robust pipeline and strong sourcing capabilities.

Deal Sourcing Efficiency: This metric could be defined as the number of deals sourced per unit of time or resources allocated to sourcing. It’s an important metric for PE firms focused on specific sectors or types of deals.

Dry Powder: This refers to the amount of cash reserves or liquid assets that a private equity firm has on hand to cover future obligations, acquisitions, and unexpected costs.

Employee Growth at Portfolio Companies: This is an indicator of job creation post-investment and could be important for certain socially responsible or impact investing PE firms.

ESG Criteria Compliance: ESG (Environmental, Social, Governance) is becoming increasingly important in the private equity industry. This KPI would measure the compliance of the portfolio companies with the ESG criteria set by the PE firm or its LPs.

Exit Ratio: This KPI measures the ratio of portfolio companies that have been successfully exited (through an IPO, acquisition, or buyback) to the total number of companies in the portfolio. A higher exit ratio can indicate a more successful private equity firm.

Follow-on Investment Capacity: This represents the firm’s ability to make additional investments in its existing portfolio companies. It can indicate the firm’s flexibility and financial capacity, which could be crucial for the growth of portfolio companies.

Founder Retention Post-Acquisition: For certain types of private equity investments, especially growth equity, the rate at which founders or key executives stay with the firm post-acquisition can be a significant indicator of the health of the investment.

Fundraising Efficiency: This is a measure of a firm’s ability to raise new funds. It could be calculated as the amount of new capital raised per unit of time since the firm’s inception.

GP Commitment: This is the amount of money that the general partners of a PE fund have invested in the fund. A larger GP commitment generally aligns the interests of general partners with those of limited partners.

Hold Period: This is the length of time an investment is held before it’s exited. It’s an important metric as it can impact IRR—a shorter hold period can increase IRR, all else being equal.

Hurdle Rate: This is the minimum rate of return on an investment required by the manager. It is a benchmark below which the fund managers do not receive a performance fee.

Internal Rate of Return (IRR): This measures the annualized effective compounded return rate that can be earned on the invested capital within the private equity fund. It is a standard KPI in private equity to assess the performance of individual funds or investments. A higher IRR indicates better performance.

Investment Horizon: This is the expected period of time that an investment will be held before it is liquidated. It helps investors understand the potential timing of their returns.

Investment Multiples: These are typically the Total Value to Paid-In (TVPI) and the Distributed to Paid-In (DPI) ratios. TVPI provides an estimate of the total value generated by a fund relative to the total capital it has drawn down. DPI measures the cash returned to investors relative to the capital drawn. These metrics provide insight into the return on investment.

J-Curve: This is used to illustrate the tendency of private equity funds to deliver negative returns in early years and then increase to positive returns later in the fund’s life as investments mature and are exited at a profit.

LP Commitment Fulfillment: This measures the rate at which Limited Partners meet their capital commitment obligations, which can impact a PE firm’s cash flow and ability to make investments.

Management Fees as Percentage of Committed Capital: This is the ratio of management fees charged to the total capital committed. This KPI helps investors understand the cost of management relative to their investment size.

Multiple of Invested Capital (MOIC): This is a calculation used to determine the gross cash-on-cash return multiple on the invested capital.

Net IRR: Similar to the IRR, but it deducts management fees and carried interest. It provides a more accurate representation of the actual returns received by the investors.

If you’d like to download these in a spreadsheet format you could then use to set value and targets for a two or three year plan then take a look at our Top 50 Private Equity Strategy KPIs.

So, there are a bunch of important KPIs to track in Professional Services. As we always say with our lists of KPIs, it’s best practice to not have too many metrics on your KPI Dashboards. KPIs are there to keep everyone focused on the most important aspects of performance that you need to get right. If you have too many, then you will be reducing the focus. So pick your winners, add them to your KPI Dashboards, and start tracking them.

Good luck with hitting your targets 🎯