Noetzold & Noetzold

Noetzold & Noetzold Integrates the Risk Dimension into Private Equity Business

Risk management is a core competence of successful private equity firms since they need to consider the risk premia and risk-return relations when making investment decisions. We support private equity companies with risk-adjusted investment valuations, implementation of best-practice risk controlling systems, and portfolio optimizations.

Risk-adjusted Valuation

Noetzold & Noetzold support their clients with risk-adjusted valuation and the evaluation of risk premia. The risks of an investment will be identified, quantified, aggregated, and discounted, resulting in a risk-adjusted net present value (NPV) for the investment. Noetzold & Noetzold evaluates the risk premia of investments as a basis for pricing and negotiations.

Noetzold & Noetzold delivers the following services:

  • Risk analysis (risk identification, measurement, and aggregation).
  • Risk controlling (e.g. calculation risk figures, risk-adjusted P&L statement, and cash flow statement)
  • Evaluation of risk premia.
  • Risk management (e.g. optimization and risk mitigation).
  • Evaluation of existing strategy under risk-return aspects.
  • Risk-adjusted strategy and risk strategy (e.g. evaluation of future potentials and synergies).
  • Optimized selection of investments under risk-return-aspects.

Risk-adjusted valuations are based on the pricing of uncertainties in future cash flows (risk premia). Thus the price of an investment is not just the NPV of discounted future cash flows but includes risk premia from fluctuations around expected cash flows. Uncertainties can be due to market volatilities or covariances (e.g. beta) or due investment specific event risks. The risk management service of Noetzold & Noetzold identifies the risks of an investment and prices these risks (mark to market).

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Portfolio Optimization

Performance measurement should not be based on fund returns alone, but must also consider the risks taken. Risk-return relations are used to benchmark portfolio performance (marking-to-market all assets and risks). The amount and composition of risks taken defines the character of the fund and is formulated by a risk strategy or an equivalent objective function. The portfolio optimization seeks the best risk-return relation under these objectives.

Noetzold & Noetzold provides the following services:

  • Evaluation of funds portfolio under risk-return aspects.
  • Risk-adjusted performance measurements and benchmarking.
  • Determination of diversification possibilities and associated premia.
  • Development of risk strategy or customized objective function (as a basis for optimization).
  • Portfolio optimization (with determination of optimization measures).

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