Valuation Model of the Expected SBDA as a Forward-Looking Performance Measure for PE Funds

Abstract

In this study, we adopt Expected SBDA as a forward-looking measure of excess return of PE funds, and attempt to examine the mechanism how expected SBDA is influenced by factors such as drift and volatility of the investee company return, expected time to find investee companies, and target exit multiple. Implications from the numerical examples are that it is better to find investee companies with large drift to increase expected SBDA, even if you pay some sourcing time and volatility risk of the investee company return and that the target exit multiple maximizing expected SBDA is generally between 3 and 6, although it depends on the magnitude of the other parameters.