What is a Track Record?

When raising capital from investors for a private equity fund there are various methods that fund managers can utilize. Some of these methods include applying for a loan, receiving investments from venture capitalists, finding an angel investor, and more. However, none of these methods will prove to be effective for a fund unless the private equity firm can provide a successful track record to investors. This track record consists of different metrics and returns for historically held assets. Essentially, if a private equity firm can show a history of high returns to investors through its track record, then they are likely going to have an easier time raising more capital from investors.

How to Create a Track Record

A track record utilizes multiple different excel functions and tools to optimize the user experience. The “Investment Name” column should be frozen so that all the chosen metrics to the right of this column can be shown next to the name of the historically held asset.

Filters can also be implemented to allow the user to easily adjust any of the provided metrics. On the next page is an example of a track record that includes the Investment Name, Property Type, Partner & Partner Type, whether it’s Realized or Unrealized and the Peak Equity Invested.

There are also other metrics that are commonly shown in a track record such as the Sale Proceeds, Amount of Leverage, Projected Returns, Deal Type, Acquisition/Hold Period and more.

Collectively, these metrics outline the performance of each individual asset that has been held in the past. By using the filters and subtotals in Excel, you can then see performance for the various subsets of the investments.

Determining Relevant Historical Deals

While a private equity firm might have hundreds of historical deals that they can provide on their track record, it is important that the firm include the entire historical performance, but more importantly, slice the returns and show the historically held assets that are relevant to the fund that capital is being raised for.

One can determine which historical assets would be relevant on a particular track record by filtering previous assets based on a multitude of existing variables. Some of these factors include the geographic region of the historical assets, property type of the historical assets, deal type of the historical assets, and acquisition period for the historical assets.

Understand Goals of Fund

Once one determines the relevant metrics that will be used to filter historical assets, these variables must match the goals of the fund requiring a capital raise. For example, if the fund invested in properties in United States, the track record would only include historically held assets that existed in the United States instead of including European assets. If the fund specifically invests in hotels, then the track record should only include past assets that are hotels.

If the fund only invests in value-add and opportunistic investments but not core investments, then the track record would only include value-add and opportunistic investments.

Also, the acquisition period should closely align with that of the fund. Once all these assets are filtered based on the metrics of the fund, only the assets that satisfy all these metrics are included on the track record.

This way, the track record presents a more accurate projection of the expected returns of the fund.

Although a track record does not guarantee expected returns, it provides support for the expected returns that the private equity firm might provide to potential investors.

Before founding 3E in 2016, Managing Member Eric Bergin was Director at Rockpoint Group, where he was responsible for for the Finance Group, as well as acquisitions, asset management, and investor reporting activities.