How can you compare private equity investments across different countries?

1 Country risk

One of the main challenges of comparing PE investments across different countries is accounting for the different levels of country risk, which refers to the political, economic, legal, and social factors that affect the stability and attractiveness of a country for investors. Country risk can influence the availability and cost of capital, the regulatory and tax environment, the market size and growth potential, the competition and innovation, and the exit opportunities for PE investors. To compare PE investments across different countries, you need to use a consistent and reliable method of measuring and adjusting for country risk, such as using risk-adjusted discount rates, country risk premiums, or sovereign credit ratings.

2 Currency risk

Another challenge of comparing PE investments across different countries is dealing with the currency risk, which refers to the fluctuations in the exchange rates between the currencies of the countries where the investments are made and where the returns are realized. Currency risk can affect the value and cash flows of PE investments, as well as the performance benchmarks and valuation multiples used to assess them. To compare PE investments across different countries, you need to use a common currency and a consistent exchange rate convention, such as using the currency of the fund or the investor, or using the historical or current exchange rates.

3 Performance metrics

A third challenge of comparing PE investments across different countries is choosing the appropriate performance metrics, which refer to the indicators and ratios used to measure the profitability and efficiency of PE investments. Performance metrics can vary depending on the type, stage, and duration of PE investments, as well as the accounting standards and reporting practices of different countries. To compare PE investments across different countries, you need to use standardized and comparable performance metrics, such as the internal rate of return (IRR), the multiple of invested capital (MOIC), or the public market equivalent (PME).

4 Valuation methods

A fourth challenge of comparing PE investments across different countries is applying the suitable valuation methods, which refer to the techniques and models used to estimate the fair value of PE investments. Valuation methods can differ depending on the availability and quality of data, the assumptions and projections used, and the market conditions and expectations of different countries. To compare PE investments across different countries, you need to use consistent and relevant valuation methods, such as the discounted cash flow (DCF), the market approach, or the transaction approach.

5 Benchmarking methods

A fifth challenge of comparing PE investments across different countries is selecting the proper benchmarking methods, which refer to the tools and sources used to evaluate the relative performance and attractiveness of PE investments. Benchmarking methods can vary depending on the objectives and criteria of the comparison, as well as the availability and representativeness of the benchmarks of different countries. To compare PE investments across different countries, you need to use reliable and updated benchmarking methods, such as the PE indexes, the peer groups, or the hurdle rates.

6 Data sources

A sixth challenge of comparing PE investments across different countries is accessing the adequate data sources, which refer to the information and databases used to support the comparison and analysis of PE investments. Data sources can differ depending on the transparency and disclosure of PE activities, the quality and consistency of data collection and reporting, and the accessibility and affordability of data providers in different countries. To compare PE investments across different countries, you need to use credible and comprehensive data sources, such as the industry associations, the research firms, or the academic institutions.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?