Ranking the players

The PEI 50 methodology involves rigour, judgment and dealing with non-transparency.

Of the many questions we’ve received regarding the second annual release of the PEI 50 – our proprietary ranking of private equity firms globally – we’ve not heard, “Why are you doing this?”

While performance is ultimately more important than size, all in this industry agree that a list of the largest private equity firms, using an apples-to-apples methodology, is a useful tool for understanding the growth of the industry and the progress of the largest players within it.

In ranking private equity firms by size, we faced many obstacles, including: no information and too much information.

We also faced more fundamental challenges: defining what we mean by “private equity”, “firm” and “size”.

We at Private Equity International think we have come up with a reasonably elegant methodology that

tackles these issues and gives people what they want: an authoritative list of the biggest firms.

As we noted when we launched the PEI 50 a year ago, ranking private equity firms is not nearly as simple as, say, ranking public corporations by market capitalisation. Over the years that we have covered the global private equity industry, we found ourselves explaining this again and again to people who contacted us asking for “a list”.

Did they mean a list of the largest funds? Private equity only, or other strategies? Funds of funds too? Global or US only?

With the PEI 50, we have sought to apply a single standard of measurement to the private equity firms we surveyed. In brief, our standard is the amount of capital raised for private equity direct investment over the past five years (from 1 January 2003 to our press time on 15 April 2008). Last year’s rankings captured fundraising from 1 January 2002 to mid-April 2007.

This methodology was created in consultation with advisors to institutional investors. It wasn’t the only system we considered, but we went with the five-year fundraising approach mainly because, first of all, it nicely captured a firm’s market heft moving forward and scope of recent deal activity and, second, it was information we could probably get even if a private equity firm refused to cooperate with us.

The 50 firms on the list are profiled in greater detail in the May 2008 issue of Private Equity International magazine.