The V3 Metric TM

How do investors and advisors identify and separate Tail End funds from performing funds? And specifically, early enough to act and advocate for a new management plan and ultimately exit strategy for Tail End investments as quickly as possible?

Private equity and debt funds’ quarterly reports, updates, and annual meetings rarely indicate problems or provide a level of transparency to properly identify Tail End funds. It’s far too easy for investors to give in to emotion and “wait until next quarter” – a fatal flaw when it comes to Tail End funds.

Tail End investments are caused by a variety of factors, and often a combination of them. General partners or investment management may legitimately need additional time and/or resources or can be unfocused, distracted, misaligned, incapable, absent, and even fraudulent. Despite this variety of problems, investment types, structures and industries, our experience and research indicate two common themes that appear in the later years across all Tail End investments:

  • Lack of distributions: Greatly reduced distributions to plan.
  • Lack of value generation: Minimal to no incremental value generated over the life of the investment.

Applied to Year 7 to a private equity or debt fund, the V3 Metric removes emotion and provides a clear and objective Tail End assessment – with clear indications when applied as early as Year 5.

tail end V3metric

Our experience and the data indicates that if a fund meets this Tail End criteria, investors and their advisors need to take action immediately. When no action is taken on a Tail End investment, over time i) existing value deteriorates, ii) ability to generate additional value dissipates, and iii) ability to generate liquidity wanes.