Private Equity Power?


Updated  I was mildly critical of the methodology behind last month’s Forbes Midas List, which ranks VCs by a variety of metrics. But the Forbes folks may have been empirical savants compared to the crew over at Fortune Magazine, which today released its Private Equity Power List. The actual magazine doesn’t hit until next Monday (Blackstone’s Steve Schwarzman is on the cover), but the initial rankings are now online here.

What’s my beef? This list seems to do little more than rank firms in order of latest fund size. First-place Blackstone has a bigger fund than second-place KKR, which has a larger fund than third-place Carlyle, and so on. It’s also worth noting that “latest fund size”’ is really used collectively by Fortune. For example, it says that Bain Capital’s last fund netted $13 billion, but this actually includes the following current investment vehicles: $8 billion core fund, $2 billion co-investment fund, $1.2 billion European fund, $1 billion Asia fund and $1 billion employee co-invest fund (and, yes, it should therefore total $13.2 billion).

The only thing that gives me pause is the absence of either Goldman Sachs or Permira in the Fortune list, since both have fund sizes large enough to deserve inclusion. Or how about First Reserve? Were they simply forgotten, or were other metrics in play? If so, what were they? I’d like to think the answer is performance, but then at least one or two middle-market or large-market firm should have intruded on what is currently just a mega-market soirée. Maybe not on a cash-on-cash basis, but certainly on an IRR basis (again, where is First Reserve?). And do fund terms count? They were mentioned in the Bain blurb, but did they knock Bain down a peg or raise Warburg up? And, let’s be honest, putting Providence Equity Partners above Apollo, Warburg, Cerberus and TH Lee deserves explanation (again, beyond fund size).

I’ve got a call into Fortune’s people to get a (hopefully) better explanation. Will update when more info becomes available. It’s also worth noting that my typical crankiness may be heightened because I just lost my $85 ski pass on the powdery slopes here in Beaver Creek…

Update: I just spoke to a Fortune PR rep, who confirms that fund size was the only metric used. He’s working to find out why some funds — GS Capital Partners, Permira, First Reserve — didn’t therefore make the cut, and also why more meaningful metrics (i.e., performance) were ignored. What follows is the official methadology:

Methodology: Rankings are based on a firm’s most recently raised buyout fund(s). FORTUNE looked at data from Capital IQ, institutional investors, and the companies themselves to determine the size of the most recently raised buyout funds. For some firms, this means a fund that was raised in 2006; for others it might be 2004. Whatever the date, the most recent fund was the one counted. In the case of companies that raise multiple funds simultaneously as opposed to employing a catch-basin approach, we chose to count only those private-equity funds that were not raised in public markets and that were earmarked for buyouts (as opposed to investments in debt, venture capital, or other ventures).