INVESTING
a managing partner at Vardhan Wealth Management, says,“ My clients want to know about the cooking and not just the end product. They want specifics about vintage and cash flows.”
Brown and Bratkovich say they both ask private equity fund managers whether they use a third party for valuations and, if so, which ones. Even if managers who used similar strategies were to fall back on consistent accounting rules— say the Financial Accounting Standards Board’ s fair value estimates for equity interests in private companies— their reported metrics can vary by their choice of valuation method, how they recognize debt and its impact on cash flows, and what comparable transactions they consider in their valuation assessments.
Fees, Product Structure, and Taxes
Also complicating matters is the fact that private equity performance metrics are generally not adjusted for taxes, which can cause problems for investors who can end up owing a big part of their gains. Lauterbach says he gets pushback from fund managers when he asks for after-tax information. So does Bratkovich.
Investors and their financial advisors are wise to consider management fees, carried interest, operating expenses, and transaction costs when selecting, and subsequently monitoring, a private equity fund manager. Even if all private equity funds under consideration follow the 2 % and 20 % management fee model( the first number is for management, the second for performance) the risks they each take to justify their fees can dramatically differ.
Product structure is yet another wrinkle in assessing performance. It makes no sense to assume private equity performance metrics mean the same thing for every type of product and fund manager. Numbers don’ t tell the full story. Murphy says,“ We focus on the fundamentals and aim to partner with private fund managers who have a proven, consistent investment methodology.” Verma echoes this view, stating,“ On behalf of our clients, we want to understand why a fund is growing.”
This has become less of a problem for wealthier investors and family offices as they become more involved with the space. Many have asked to become co-investors and assume higher risks from fund investments in exchange for control over the ways the portfolios are constructed and, in some cases, lower fees. This has also allowed them more access, since they can go well beyond the kind of fund-level performance reports they would receive if they were limited partners. They can also spend more
Investors and their financial advisors are wise to consider management fees, carried interest, operating expenses, and transaction costs when selecting, and subsequently monitoring, a private equity fund manager.
time researching the investments. There’ s lots of talk in the private equity space— as well as in alternative investments in general— about“ democratizing,” giving less wealthy retail investors the same shot to invest in these securities and offering them the same kind of diversification and performance opportunities enjoyed by the wealthy.
This has not only prompted talk of putting private equity funds in 401( k) plans but put the spotlight on vehicles like“ evergreen products,” open-ended funds that aren’ t as hemmed in by fixed end dates like closed end funds are. Despite a deceleration in the number of new evergreen private equity funds issued since 2019, S & P Global cites the lure of their lower investment minimums, more frequent reporting, and easier cash-outs as part of their appeal to institutional and retail investors. Unlike traditional drawdown funds, however, evergreen funds require a private equity fund manager to maintain sufficient liquidity to satisfy any redemption requests. And that greater liquidity requirement can also mean a cash drag on returns.
As Brown explains,“ Different regulations for these perpetual funds limit the universe of available investments. Some of our clients start out with evergreens and switch to drawdowns later on.”
Private Equity Reporting Benchmarks and Standards
It’ s harder for investors, especially individuals, to find fee and performance benchmarks in the private equity space. Lauterbach refers to the benchmarking here as“ idiosyncratic,” adding,“ We estimate a benchmark for each family office with exposure to alternatives.” Major consulting firms like Cambridge Associates publish their own private equity indices.
However, starting in early 2026, the Institutional Limited Partners Association, a trade organization, will roll out updated templates to better standardize private equity reporting. Whether fund managers adhering to the association’ s guidelines will provide more detailed performance analysis for their wealthy and family office clients— and not just for their institutional investors— remains to be seen. In December, the CFA Institute, meanwhile, updated its Global Investment Performance Standards for private equity from their previous 2020 standards. These new guidelines, designed to further increase transparency and consistency of performance numbers, require the firms using them to report a“ since inception” internal rate of return and reveal the economic impact of fees.
Understanding how a private equity fund performs is undeniably critical for investors around the world. The reported information must be timely, easy to comprehend, and relevant. Quantity does not equate to quality. So, it’ s incumbent on private equity managers to be as forthcoming as possible just as it is imperative for financial advisors and their wealthy clients to carry out adequate due diligence.
After a productive career as a Wall Street trader, testifying investment expert witness, and corporate trainer, SUSAN MANGIERO, Ph. D., CFA, CFE, FRM, MBA, MFA currently works as a B2B content strategist, executive ghostwriter, and independent financial journalist. Her articles, books, and thought leadership appear in more than 100 business outlets.
32 | FINANCIAL ADVISOR MAGAZINE | JANUARY / FEBRUARY 2026 WWW. FA-MAG. COM