|The Touch of Light|
A projection is a quantitative estimate of future economic or financial performance. In private equity, capital commitments are typically drawn down across an investment period of several years.
Limited partners start to receive distributions before all the capital is drawn down. this unique cashflow pattern makes it difficult for investors to gauge their asset allocation. Investment model can be created to draw projections of future private equity market.
They help the general partners to anticipate market environment and to plan their commitments accordingly. Projections can be generated by using econometric models, such as the CEPRES PerFore models (2006), to predict the future performance trends of a company, country or other financial entity.
These models are typically market simulations by computer programs that take a number of variables, standard cashflows in the industry, historical and current market information as input and generate future financial performance trends.