A new Scientific Infra & Private Assets (SIPA) report entitled “Building Custom Private Equity Fund Benchmarks”, shows that custom benchmarking allows for almost any combination of index construction across sectors and geographies. This is important because it allows limited partners (LPs) and general partners (GPs) to examine performance against the most relevant benchmark.

Given private equity fund managers take meaningful specific risk, often allocating entirely to one country, or to a few specific sectors, the ability to customise a benchmark allows this exposure to be replicated more accurately than can be done with broader indices. This functionality compliments the existing flagship private equity indices and thematic indices across geographies and sectors.

As we show in fund case studies covering Sweden, Germany and Spain-based funds, the choice of benchmark can determine whether a fund has generated alpha or not. The ability to take multiple cuts at the data helps one judge performance more precisely and can lead to better investment decision making (LPs) and improved portrayal of performance (GPs).