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Sidi

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1

Methods for setting financial goals of a PE firm?

Real estate PE firm (investing in airports around the world) asks for your help in:

1. Setting the firm's target return rate

2. How to best achieve it

How to best structure this problem?

-------------

Thanks for the input. I have my issue tree below. What do you think of it?Real Estate PE Issue tree

Real estate PE firm (investing in airports around the world) asks for your help in:

1. Setting the firm's target return rate

2. How to best achieve it

How to best structure this problem?

-------------

Thanks for the input. I have my issue tree below. What do you think of it?Real Estate PE Issue tree

(edited)

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Hi Anonymous,

well, the question is very unconcrete and the case could go into a million directions. But here is a fundamental line of thinking that should be employed:

I would start by making explicit the relationship between return rate and inherent risk of an investment class. So determining its own risk appetite is a central precondition for the PE fund in order to set a reasonable target return rate. Then, for its given risk appetite, the market return rate of comparable assets in the same risk bracket needs to be researched and should form a "floor level" of expected returns. This can then be transformed into a "decision grid" for each investment opportunity to come to a go or no-go decision.

But a I said - the actual case and the required analysis dirung the case can branch off into many different directions.

Cheers, Sidi

Hi Anonymous,

well, the question is very unconcrete and the case could go into a million directions. But here is a fundamental line of thinking that should be employed:

I would start by making explicit the relationship between return rate and inherent risk of an investment class. So determining its own risk appetite is a central precondition for the PE fund in order to set a reasonable target return rate. Then, for its given risk appetite, the market return rate of comparable assets in the same risk bracket needs to be researched and should form a "floor level" of expected returns. This can then be transformed into a "decision grid" for each investment opportunity to come to a go or no-go decision.

But a I said - the actual case and the required analysis dirung the case can branch off into many different directions.

Cheers, Sidi

Thanks for the input. I have my issue tree above. What do you think of it? — Jeri on Aug 06, 2018

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