Method and system for modeling and benchmarking private equity and applications of same

• US 7,698,196 B1
• Filed: 05/11/2004
• Issued: 04/13/2010
• Est. Priority Date: 06/30/2003
• Status: Expired due to Fees

• Current Assignee: Capital Dynamics Incorporated (Capital Dynamics AG)
• Original Assignee: Capital Dynamics Incorporated (Capital Dynamics AG)
• Inventors: Kubr, Thomas, Rouvinez, Christophe
• Primary Examiner(s): Havan; Thu Thao
• Application Number:
  US10/843,834
• Time in Patent Office: 2,163 Days
• Field of Search: 705 36 R- 37
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 30/02 Marketing; Price estimation or determination; Fundraising
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

Methods and systems are presented which permit more accurate analysis of the performance of private equity assets relative to the performance of a public index and also permit the simulation of private equity asset behavior during time periods for which reliable data for actual private equity performance is not available. The methods systems permit more accurate evaluation of a private equity asset relative to a benchmark, performance comparison of multiple private equity assets, the generation of scaled private equity data for use during simulation or other analysis under market conditions for which reliable private equity performance data is not available, risk analysis, rating and risk monitoring of private equity assets or structured products that invest in private equity assets, and as part of a private equity asset management and portfolio allocation tool.

Claims

1. A method for benchmarking relative to an index a performance of a financial product having an irregular cash flow, said being method implemented with a computer system comprising one or more computer processors, the method comprising the steps of:

receiving using at least one of said computer processors first cash flow data for the financial product over a period of time, the data including at least one input event and at least one output event;

receiving using at least one of said computer processors values for the index over the period of time;

determining using at least one of said computer processors a performance characteristic of the financial product;

determining using at least one of said computer processors a value of a scaling function, wherein a performance characteristic of an investment of a second cash flow in shares valued relative to the index during the period of time has a specified relationship to the performance characteristic of the financial product, the second cash flow corresponding to the first cash flow modified by the scaling function;

the determined value of the scaling function providing a measure of the performance of the financial product relative to the index.

2. The method of claim 1, wherein the financial product is selected from the group consisting of an investment in a private company, a fund of company investments, a fund of funds, hedge funds, insurance liabilities, insurance claims, natural resources, energy investments, or derivatives thereof.

3. The method of claim 1, wherein the financial product comprises a combination of a plurality of financial products.

4. The method of claim 1, wherein the financial product comprises private equity, cash flow input events comprise draw downs, and cash flow output events comprise disbursements.

5. The method of claim 4, wherein the performance characteristic of the private equity and the performance characteristic of the investment of the second cash flow are respective final values at the end of the period of time.

6. The method of claim 5, wherein the specified relationship is an equality.

7. The method of claim 5, wherein the scaling function is linear.

8. The method of claim 7, wherein the scaling function is applied only to disbursements in the second cash flow.

9. The method of claim 1, wherein the step of determining a value of a scaling function comprises the steps of:

(a) selecting an initial value of the scaling function;

(b) determining a performance characteristic of an investment of the first cash flow scaled by the scaling function in shares valued relative to the index during the period of time;

(c) comparing the performance characteristic of the investment with the performance characteristic of the at least one financial product;

(d) if the comparison does not have the specified relationship, adjusting the value of the scaling function; and

(e) repeating steps (b)-(d) until the specified relationship is achieved.

10. The method of claim 1, further comprising the step of outputting a benchmark value based upon the determined value of the scaling function.

11. The method of claim 1, wherein the performance characteristic is one of IRR and NAV.

12. A method for benchmarking relative to an investment index the performance of a financial product having an irregular cash flow, said being method implemented with a computer system comprising one or more computer processors, said method comprising the steps of:

receiving using at least one of said computer processors data representing a cash flow of the financial product for a period of time;

receiving using at least one of said computer processors values of the index for the period of time;

determining using at least one of said computer processors a value of an asymmetric scaling function wherein a first performance characteristic of the financial product during the period of time and with a first cash flow has a specified relationship to a second performance characteristic of an investment of a second cash flow in shares valued relative to the index during the period of time;

one of the first and second cash flows corresponding to the received cash flow of the financial product and the other of the first and second cash flows corresponding to an asymmetrically scaled version of the cash flow of the financial product in accordance with the scaling function; and

outputting using at least one of said computer processors an indication of the determined value;

the determined value of the scaling function providing a measure of the performance of the financial product relative to the index during the time period.

13. The method of claim 12, wherein:

the cash flow comprises at least one cash input event and at least one cash output event; and

the asymmetric scaling function comprises a multiplier applied only to one of cash output events or cash input events.

14. The method of claim 12, wherein the first cash flow is the cash flow of the financial product and the second cash flow is the asymmetrically scaled version of the cash flow of the financial product in accordance with the scaling function.

15. The method of claim 14, wherein the specified relationship comprises equal final values at the end of the time period.

16. The method of claim 12, wherein the financial product comprises a private equity asset.

17. A method for analyzing a performance of at least one asset having an irregular cash flow, said being method implemented with a computer system comprising one or more computer processors, the method comprising the steps of:

receiving using at least one of said computer processors first cash flow data for the at least one asset over at least a first period of time;

receiving using at least one of said computer processors values for an index over a second period of time, wherein said second period of time is equal to one of;

said first period of time or a different period of time;

determining in a computer using at least one of said computer processors at least one of;

i. a scaling function, wherein a performance characteristic of an investment of a second cash flow in shares valued relative to the index during the second period of time has a specified relationship to the performance characteristic of the asset, the second cash flow corresponding to the first cash flow modified by the scaling function;

ii. a scaling function, wherein said first cash flow data is for a plurality of assets, and wherein a first performance value of aggregate cash flow from the first time period for the plurality of assets modified by the scaling function has a specified relationship with a corresponding second performance value of the aggregate cash flow from the first time period as invested in shares valued relative to the index during the second time period;

and, based on the determined scaling function, the method further comprising at least one of the following steps;

a) providing in said computer using at least one of said computer processors a measure of the performance of the asset relative to the index;

b) generating in said computer using at least one of said computer processors scaled cash flow data using the scaling function on at least a portion of the cash flow and providing the scaled cash flow data as input to a financial analysis system;

c) simulating in said computer using at least one of said computer processors behavior of the at least one specific asset during the second time period;

d) generating in said computer using at least one of said computer processors a plurality of simulated cash flows for a plurality of selected sets of assets and a plurality of second time periods and analyzing the simulated cash flows to determine at least one of;

a future income stream or a probability that a specified asset will be able to meet its determined expected future payment obligations.