A repeatable rigorous framework for analysing private funds

In the hunt for higher returns and growth, investors have increasingly turned to private markets. It doesn’t come without risk. 

Less transparent, and often less liquid, investors have experienced a gamut of returns in these vehicles. There have also been large-scale losses. Take, for example, the $560 million losses in FS KKR Capital due to a large number of loans defaulting in the first quarter of 2026 or AustralianSuper’s losses of $1.1bn in equity and loans from its venture capital investment with Vista Equity Partners in US education start-up Pluralsight back in 2024. 

Once only available to ultra-high net worth and institutional investors, private market investments have become increasingly accessible to retail investors and an integral component of diversified portfolios. There’s a reason why most superannuation funds incorporate some allocations to private markets to pursue growth and income for their investors. You can even find some listed versions of private market funds available on the ASX today. 

With more options than ever, many investors scramble to analyse these funds and how to use them – assessing performance is not as simple as following standard public market measures. 

Measuring performance of private market funds 

When you look at public market funds, performance is often more accessible – it’s based on changing listed assets and measured against an index. When it comes to private markets, there are different measures to look at. While they may still publish performance against an index, the below may be more useful. 

- Net internal rate of return (net IRR) 

This measures the actual annual returns that investors have received after paying fees (and factoring cash flows) and is more commonly used by funds investing in illiquid assets. You can use this regardless of whether the fund is private equity or private credit, or which sector the fund operates in. You are looking for higher values typically here. In some cases, you may see fund managers use time-weighted returns instead which doesn’t factor cash flows but presents returns over a set period of time.  

Not all funds will publish this information publicly – some will only publish in confidential annual reports or in their investor portals. If you are a prospective investor, you can often request this information directly from the fund manager or if you use a financial adviser, they may have access to this information.

- Multiple of invested capital (MOIC) 

This measures the total money return on your investment for the duration you hold it – it doesn’t factor time periods of receiving that money return. A higher MOIC generally means a higher profitability. It’s worth noting that MOIC for private equity funds may typically be higher compared to private credit funds.

- Public market equivalent (PME) 

This measure converts performance against a public index, like the S&P/ASX 200. It demonstrates what the same investments would look like in public markets compared to the fund and can indicate whether the fund actually outperforms a publicly listed alternative. There are a range of options for calculating PMEs with proprietary methods offered by providers and it can be a helpful way for investors to compare private funds with other public funds used in their portfolios. 

When looking at performance, make sure to consider performance over longer periods. Some private funds are designed for your capital to be invested over 7-10 years so if that level of performance is available, it should give you a better picture of performance across market cycles. Some fund managers may also do stress-testing to give you an indication of performance in different market conditions. 

You should also look for independent verification of the performance and asset valuations by industry experts – this helps ensure that funds have a level of transparency and allow you to make a more informed decision. It also avoids Ponzi-scheme type situations where returns have been made by chewing into capital and new inflows – performance has been earned instead. You should also compare the performance to private market peers for a full comparison. 

Don’t forget fees – including the full fee stack, not just the base management fee – to make sure that the returns actually compensate you for what you are paying. You can read more here.  

Evaluating the fund manager 

Performance is only part of the story. Just like in public funds, take the time to understand the investment team managing your fund and their experience.  

As a starting point, it can be valuable to check financial licenses through ASIC and APRA to ensure that the funds are licensed to offer the product and that there are no actions or investigations in process for that particular fund manager. 

Some things to look for: 

- Team tenure  

How long has the investment team worked together? Has there been much turnover in the team? 

- Qualifications and Experience 

Are the members of the investment team qualified to manage your money and what qualifications do they hold in relation to the area of private markets they invest in? For example, a private equity fund that invests in infrastructure may have team members who have also worked on building and managing infrastructure projects in past roles or have degrees and industry association memberships to reflect this. You want to see deep and lengthy experience in managing investments similar to the fund you are investigating and in the industry the fund operates specifically in. An obvious part of this is that none of the team should be disqualified from managing money under ASIC or APRA rules, such as being convicted of offences like fraud. 

- Manager track record 

This applies both to the overarching fund manager issuing the fund as well as the investment team. Look at their performance track record across their other strategies – particularly in similar strategies. Consider best and worst performing years and the explanations for these in reporting documents. A well-established business with an investment team holding a consistent track record for managing a particular strategy is going to be a better option compared to a team which either hasn’t worked together or has never worked on similar strategies. 

- Skin in the game 

The term ‘skin in the game’ tells you how aligned the investment team’s interests are with your own. Are they also invested in the same strategy to a meaningful degree? This would mean that strong consistent returns are equally rewarding to them as you, plus also plays on the psychological principle of loss aversion – where people feel the pain of loss more than the joy of gain. Following this principle would suggest fund managers invested in the same fund might be more careful in their decisions to avoid losses. Not all fund managers have skin in the game, but it can be a positive thing to note, particularly when it comes to private markets which can often be less transparent and more illiquid. 

- How the team are paid: bonuses and incentives  

Aside from a base salary, it can be worthwhile to investigate the extra incentives and bonuses available to the investment team. What level of returns do they need to achieve to receive bonuses, for example, or are they also incentivised to manage the fund based on certain risk and liquidity confines to avoid simply chasing performance? You might also consider whether there are vesting rules for profits shared amongst the team to encourage long-term tenure. 

Liquidity and risk profile 

Before you even assess a private fund for these things, it’s important you take the time to understand your own risk tolerance and needs so you can ensure these meet your own needs. Low levels of liquidity might be fine for your portfolio or it may not depending on your strategy, goals and circumstances.  

Some key things to look for include:

- Lock-up and exit terms 

What restrictions does the fund have on redeeming from the fund, such as lock-up periods or minimum investment time periods?

- Overall liquidity management 

How does the fund manage redemptions? Is there a cash reserve or does it need to sell assets? If it needs to sell assets, consider how liquid the market for those assets may be.

- Asset quality and valuations

Higher quality assets with strong independently-verified valuations are likely to have a better risk profile compared to lower quality assets (which may offer higher returns to compensate for higher levels of risk and potential of loss). For example, in a private credit fund, you might want to see loans in the higher parts of the capital structure, such as senior secured loans and higher quality borrowers with a low loan-to-value ratio.

- Leverage 

What level of debt does the fund hold and can it service this adequately? Investors should be cautious of seeing overly-leveraged fund offerings.

- Diversification

Some private funds can be highly concentrated, such as a property fund only holding 1-2 assets, while others can be diversified, such as a private credit fund which holds debt securities spread across the capital stack. Neither is necessarily bad or good but you need to consider what this means in the context of your overall portfolio. Can you offset the concentration risk of one particular private fund through a highly diversified broader portfolio? Or are you better suited to more diversified private offerings that spread internal risk? Generally, a diversified option will help offer better risk management in your portfolio. 

Final steps before buying 

A thorough due diligence process can help you not only compare private fund offerings, but develop a deep knowledge of what you are actually investing in, meaning an informed decision where you appreciate the risks you are taking. 

Don’t forget that the analysis of the fund and comparison with peers is only part of the story. You should consider what it looks like in the context of your own portfolio and whether it actually suits your strategy before going ahead.  

After all, a great fund on paper is only a great investment for you if it actually meets your strategy, goals, needs and circumstances.

Disclaimer: This article is prepared by Sara Allen. It is for educational purposes only. While all reasonable care has been taken by the author in the preparation of this information, the author and InvestmentMarkets (Aust) Pty. Ltd. as publisher take no responsibility for any actions taken based on information contained herein or for any errors or omissions within it. Interested parties should seek independent professional advice prior to acting on any information presented. Please note past performance is not a reliable indicator of future performance.