Data wars: Return of the performance debate

Data wars: Return of the performance debate

Chris Higson, a professor in accounting at the Coller Institute of Private Equity at London Business School, and Rüdiger Stucke, a professor at the University of Oxford, last week published a report entitled ‘The Performance of Private Equity,’ in which they reiterated concerns first made by Stucke in December about the quality of Thomson Reuters’ data on a sample of US private equity funds.
Higson and Stucke claimed that in 2010, performance data for more than 40% of the private equity funds in a Thomson Reuters sample of US funds raised between 1980 and 2005 was out of date. They added that incomplete data on these funds had led to a downward bias, therefore making it easier for many funds to claim they outperform the index.
Higson said: “It turns out the [Thomson Reuters] data is wrong, significantly biased. As far as we can tell it’s that whoever was looking after the data simply didn’t update it.”
But Leon Saunders Calvert, head of global deals and private equity at Thomson Reuters, told Financial News this week : “We have already emphasised those claims are not substantiated and not valid. Coller appear to have taken the opportunity to highlight suggested problems which are unsupported by our data.”
He added that Coller had not “contacted us or spoken to us” and that Thomson Reuters continues to discuss its data with private equity firms to ensure it can “reflect their market accurately”.
Higson said in the report last week: “The performance is measured in terms of net asset values. Because there are so many incomplete records in Thomson Reuters’ [data], those net asset values got frozen and significantly understated the performance of the funds.”
Calvert said there had been no errors in its system and the incomplete data was as a result of its researchers being unable to obtain the latest cash flows of some funds. He said Thomson Reuters had criteria for what defined a so-called “stale fund” so they could be stripped out and its research currently included no funds it deemed to be stale. He added the company’s clients were aware the data’s methodology included some funds with incomplete data.
He declined to disclose the number of researchers responsible for updating the company’s system on the grounds that the information was commercially sensitive.
He added that because Thomson Reuters had not supplied Higson and Stucke with the underlying cash flows of the funds in its sample because they were confidential, “to come to some of their conclusions, which we know are wrong, they have to have made a number of assumptions about the data”.
The comment highlights the continuing debate in the buyout industry over the credibility of performance and valuation figures. Last week, members of the private equity industry criticised valuation methods following news that US regulator the Securities and Exchange Commission had launched an informal inquiry into how valuations are calculated.
In May, trade body the European Private Equity and Venture Capital Association for the first time made its complete market research publicly available as it attempts to improve its transparency and the credibility of its data.
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