Practical Applications of Private Equity Benchmarking for Asset Owners and Investment Managers

Abstract

In <b>Private Equity Benchmarking for Asset Owners and Investment Managers</b>, from the Fall 2021 issue of <i><b>The Journal of Index Investing</b></i>, authors <b>Emilian Belev</b> and <b>Dan DiBartolomeo</b> (both of <b>Northfield Information Services</b>) address the challenges of trying to benchmark the performance of private equity (PE) funds. Investors seeking to evaluate and compare different PE funds often are hindered by the lack of publicly available PE benchmarks. Private equity funds are not subject to the same disclosure requirements as publicly offered mutual funds, so PE fund managers do not share data on their funds to the same extent that publicly offered funds do. Therefore, analysts have developed methods to benchmark PE fund performance that try to address issues like transparency, smoothing of returns, and biases in data collection. The authors sorted current PE benchmarking approaches into four categories and described the key characteristics, uses, and pros and cons of each. They did not state a preference for any approach, but instead evaluated them based on how well they adhere to the principles of objectivity, efficiency, and transparency. The goal of any benchmark should be to help institutional investors understand whether a PE fund is adding value to their portfolios.