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#16 Avi Turetsky

Fund Shack private equity podcast
Fund Shack
#16 Avi Turetsky

Avi Turetsky leads Landmark Partners’ Quantitative Research team, which just co-authored a new way to measure private equity performance, called the Excess Value Method.

In this Fund Shack private equity podcast, Avi Turetsky, who leads Landmark Partners’ Quantitative Research team, discusses the groundbreaking “excess value” method, which has the potential to reshape how LPs and GPs measure and reward performance in private equity.

Avi introduces the concept of the excess value method, an innovative approach that quantifies the value a private equity manager adds compared to public markets. Private equity investments aim to outperform public markets, and excess value aligns GP compensation with the objective of justifying illiquid investments for LPs.

Traditional carried interest models have limitations, including rewarding GPs even when public markets excel and a fixed 8% preferred return threshold.

Avi illustrates how excess value calculates the value added by private equity managers beyond what public markets offer. It provides greater granularity, allowing LPs to quantify sources of return such as sector selection, market timing, and operational value creation.

Despite financial markets embracing sophisticated tools, private equity lags in adopting advanced metrics, often relying on rudimentary measures like IRR and TVPI. Excess value grants compensation flexibility, enabling LPs and GPs to structure payments according to their preferences. However, implementing excess value prompts considerations about timing, benchmarks, and NAV accuracy, enhancing transparency and alignment.

Avi predicts a significant adoption of excess value within 5-10 years, reshaping private equity compensation toward performance-based models.Excess value offers fairness, transparency, and precision, encouraging stakeholders to rethink their investment strategies.

In an evolving private equity landscape, excess value introduces a perspective that can benefit LPs, GPs, and the industry at large.