PE Scorecard Ratings: Frequently Asked Questions
What are the PE Scorecard Ratings, and why are they essential for private equity firms?
The PE Scorecard Rating is a comprehensive assessment designed to evaluate a private equity (PE) firm’s value creation capabilities, encompassing operational effectiveness, responsible investing practices, and stakeholder feedback. The rating system consists of three core components, each weighted equally to determine the overall PE Scorecard Rating:
- Value Builder Rating (1/3 weight): This rating assesses the firm’s operational capability across various dimensions, including Talent, Growth, Engagement, Focus, Tenure, Leadership, Strategy, Operating Model, Executive Positioning, and Communications. It evaluates how the firm drives operational improvements and growth its portfolio companies and within its own firm.
- Responsible Investment Rating (1/3 weight): This rating examines the firm’s approach to responsible investing, encompassing their policies, processes, programs, and partnerships related to environmental, social, and governance (ESG) factors. It assesses the firm’s integration of ESG considerations into its investment strategies and value-creation efforts.
- Stakeholder Rating (1/3 weight, if available): This rating gathers feedback from verified Limited Partners (LPs) and portfolio company management teams, providing a valuable internal perspective on the firm’s strengths and areas for improvement. This stakeholder rating complements the data-driven insights from the Value Builder and Responsible Investment Ratings. The Stakeholder Rating is only incorporated into the overall PE Scorecard Rating after a minimum number of verified ratings have been submitted.
Without a Stakeholder Rating, the Value Builder and Responsible Investment Ratings are each weighted at 1/2 to calculate the overall PE Scorecard Rating.
Why It Matters:
- Holistic Evaluation: The PE Scorecard Rating offers a comprehensive view of a PE firm’s ability to create value, considering operational effectiveness, responsible investing practices, and stakeholder perspectives (when available).
- Balanced Weighting: The equal weighting of the three components ensures that operational excellence, responsible investing, and stakeholder feedback are equally important in determining a firm’s overall rating.
- Benchmarking & Differentiation: The resulting Band Rating (1 being the lowest quintile and 5 being the highest quintile) allows firms to understand their performance relative to peers, highlighting areas of strength and potential improvement, thereby aiding differentiation in a competitive market.
- Data-Driven Insights: The rating is grounded in data analysis and a stakeholder perspective, providing valuable benchmarks and identifying areas for potential improvement.
- Transparency and Accountability: By publicizing the rating methodology and results, BuildRI promotes transparency and encourages PE firms to improve their practices continuously.
- Investor and Talent Confidence: A strong BuildRI rating can enhance a PE firm’s reputation with acquisition candidates, talent and investors who prioritize value creation and responsible investing.
Where does PE Scorecard get this data?
The PE Scorecard ratings are compiled by a team of experts in operational improvement, private equity, and responsible investing, utilizing both human expertise and artificial intelligence (AI) technologies to gather and analyze data from multiple sources:
- First-Party Data: This includes information directly from the PE firm, such as publicly available reports, investor presentations, website content, social media activity, and interviews with leadership.
- Third-Party Data: PE Scorecard leverages many external sources, including reputable ESG databases, private equity-focused databases, news articles, industry reports, and expert analyses. This includes, but is not limited to, employee review platforms (e.g., Glassdoor), professional networking sites (e.g., LinkedIn), social media websites, career websites, and other publicly available information.
- Stakeholder Feedback: When available, direct recommendation ratings from Limited Partners (LPs) and portfolio company management teams are incorporated to provide a well-rounded perspective.
PE Scorecard utilizes manual research and data-gathering techniques, sometimes using artificial intelligence (AI) to extract relevant information and insights. We prioritize transparent, tangible, well-defined, quantitatively precise data, and responsive to direct action or investment.
How is the PE Scorecard Band Rating calculated?
The PE Scorecard Band Rating is a relative ranking that reflects a PE firm’s overall performance compared to its category peers. The bands range from 1 (lowest) to 5 (highest). The calculation combines the scores from the three components (Value Builder, Responsible Investment, and Stakeholder, if available) into a single score. This combined score is compared to the distribution of scores among peer firms within the same category. Specifically, PE Scorecard divides the distribution of scores into quintiles (five equal groups). The quintiles are used to determine the Band Rating. A firm in the top quintile (highest scores) would receive a Band Rating of 5, while a firm in the bottom quintile (lowest scores) would receive a Band Rating of 1. Firms in the middle three quintiles would receive Band Ratings of 4, 3, or 2, respectively.
How can a private equity firm improve its PE Scorecard Band Rating?
Enhance your firm’s PE Scorecard Band Rating by leveraging the PE Scorecard membership and its associated benefits:
- Gain Exclusive Access to Insight Reports: PE Scorecard members receive detailed reports offering valuable insights on industry peers and the rating dimensions. These reports include benchmarking data, emerging trends, best practices, and recommended strategies tailored to your firm’s category and region.
- Identify Opportunities for Improvement: Utilize the insights from these reports to pinpoint areas where your firm can enhance its operational effectiveness, responsible investing practices, and stakeholder engagement.
- Develop Targeted Action Plans: Based on the data and recommendations provided in the reports, create actionable strategies to address any identified gaps and elevate your overall performance.
By harnessing the power of PE Scorecard’s research and insights, your firm can make informed decisions, drive continuous improvement, and achieve a higher PE Scorecard Band Rating, solidifying your position as a leader in value creation.
Why we gather and analyze this data:
Most PE firms claim to have an operational improvement approach, an area that most C-Suite leaders and LPs are focused. Yet, without significant resources, these stakeholders do not have the resources to appropriately benchmark and assess a firm’s capabilities in relation to others. PE Scorecard’s multi-faceted data collection and analysis approach ensures a holistic view of a firm’s value creation capabilities, encompassing ESG and operational performance. This enables stakeholders and PE firms to:
- Make informed decisions about partnerships, investment strategies and resource allocation.
- Identify and prioritize areas for improvement.
- Identify and enhance differentiation amongst industry peers.
- Benchmark performance against industry peers.
- Ultimately, build stronger, more resilient, and more valuable PE firms and portfolio companies.
How often is the data updated?
Currently, data is updated between 1 and 4 times per year. However, as PE Scorecard continues to leverage AI and machine learning to monitor and assess relevant data sources continuously, we anticipate that the frequency of updates will increase.
What is PE Scorecard’s position on independence?
At the heart of the PE Scorecard Rating is independence. Our ratings rely solely on publicly available data and information, ensuring an unbiased and objective assessment. PE Scorecard employees do not accept gifts or compensation from the firms we rate. Our commitment to independence and rigorous research standards ensures that our ratings are a trusted and reliable source of information for the private equity industry.
How does PE Scorecard ensure its research is balanced and accurate?
PE Scorecard employs a research methodology that combines human expertise with advanced data analytics and AI-powered tools. Our team of experienced professionals conducts in-depth research and analysis, adhering to best practices in data collection, analysis, and reporting. We have internal quality assurance processes to minimize inconsistencies and biases.
Can PE Scorecard investors influence the ratings or research?
No, our investors have no influence over our research or ratings. PE Scorecard operates independently, with all decisions regarding our ratings and research made by our leadership team, who are committed to maintaining the highest standards of objectivity and impartiality.
Do PE firms need to be PE Scorecard clients to be included in the ratings?
No, inclusion in PE Scorecard’s ratings is solely based on the firm’s relevance and significance in the private equity landscape. Our decisions are not influenced by a firm’s client status or any commercial relationship with BuildRI.
Isn’t it possible that private equity firms may have value-creation and responsible investment programs that are not disclosed?
Absolutely. First, our “outside-in” approach enables us to offer an unbiased and independent profile of a firm’s value creation and responsible investment maturity, without relying on proprietary surveys that can incorporate self-reported biases. The volume of publicly available data and the range of sources available are growing continuously, enabling us to build a more indicative assessment of capabilities than the narrow, survey-based approaches that exist today. Second, our approach encourages increased levels of disclosure, which helps to level the playing field for stakeholders and improve performance results for all.
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Notice: The information provided is for informational, non-commercial purposes only, does not constitute investment advice and is subject to conditions available in our Legal Disclaimer. Usage as an investment or credit rating is not permitted. Unless otherwise explicitly agreed in writing, usage for products and services, index creation, derivative work, portfolio or fund management, or any other usage are not permitted. By way of exception, usage is permitted only to the rated company, limited to a single reference of its own information in annual reporting and sustainability website, mentioning BW ESG Corp dba PE Scorecard as a source. BW ESG Corp incorporates the use of publicly-disclosed information from private equity firms and 3rd parties in its publicly-available scoring platform.
