Private
Equities
Market
Indices
Private Equities represent a very large market of several dozen trillion dollars (USD65T of market capitalisation tracked in privateMetrics as of YE24). In comparison private equity funds' AUM represent a fraction of this market (c.USD5T). Tracking the private equities market that is at the source of private equity equity fund returns is essential to understand and compare the performance of private asset managers. It is ket to both fund selection by LPs and showing the alpha creation potential of the best GPs.
PrivateMetrics is a suite of suite of private equities indices that is both robust and granular and allows benchmarking almost any private equity fund strategy or product. privateMetrics benchmarks can also be customised to reflect specific and dynamic exposures to any of the PECCS® taxonomy segments and risk factors like size, leverage, profits, etc.
using privateMetrics indices
for investment selection and performance monitoringInvestors with fund or investment cash flows only cannot solely rely on fund IRRs or TVPI to measure performance or select managers because they are based on stale, backward-looking and often inaccurately reported NAVs. With privateMetrics market indices, investors can use the most representative benchmark of the fund or portfolio strategy to compute the 'direct alpha' of the manager or investment team. Direct Alpha is an improved variant of the PME methodology (see link below).
- Download complete use case files including a step-by-step description of the methodology and data and a working spreadsheet showcasing the use of privateMetrics in fund selection and alpha tracking.Download the Use Case Files
Investors with time-weighted returns for their private equity investments can compare the risk-return profile of their portfolio or fund with a representative market index measuring the risks and performance of the relevant market, and compute risk, correlations, return contributions and manager outperformance relative to a market index as one does for any other asset class.
- Download complete use case files including a step-by-step description of the methodology and data, and a working spreadsheet showcasing the use of privateMetrics in benchmarking.Download the Use Case Files
FOR STRATEGY AND RISK MANAGEMENT
Investors needing capital market assumptions or expected returns, risk and correlation measures for portfolio allocation research and analysis can use privateMetrics indices to represent the private equity asset class in a multi-asset setting. Thanks to it rich risk data and absence of serial correlation in the return, there is not need to artificially un-smooth appraisal data.
- Download complete use case files including a step-by-step description of the methodology and data, and a working spreadsheet showcasing the use of privateMetrics in capital market assumptions and strategic asset allocation.Download the Use Case Files
Investors needing robust risk metrics cannot use reported appraisals because their typical lack of market calibration leads to very low and completely unrealistic reported levels of risk and wildly over-estimated risk-return profiles. privateMetrics measures the ongoing value of thousands of private equity companies and the resulting market indices exhibit realistic volatility and no smoothing. As such they allow computing robust risk metrics such as VaR, Maximum Drawdown, and a believable Sharpe ratio.
- Download complete use case files including a step-by-step description of the methodology and data, and a working spreadsheet showcasing the use of privateMetrics in risk reporting.Download the Use Case Files
privateMetrics constituent dataset
A representative datasetGeography
ActivitY
lifecycle
revenue
customer
The selection process for the 2000 constituents of the privateMetrics Index is governed by a rigorous and structured methodology to ensure a fair and accurate representation of significant private companies across various markets.
Universe Determination:
The initial step involves establishing eligibility criteria where companies must be private, for-profit, non-publicly traded, and non-government-owned. Eligibility is restricted to companies that are not in dissolution, liquidation, or bankruptcy and are headquartered in targeted countries with at least two fiscal years of accessible financial data and non-negative sales. Companies that are subsidiaries of public entities or are majority-controlled by such entities are excluded, except if the parent company is private and has accessible financials.
Converting Weights to Number of Constituents:
Weights are assigned to each country and activity based on factors like GDP, private market size,
and foreign investment restrictions. These weights determine the distribution of the 2000 index constituents in the private2000 index. The number of constituents per country is calculated by applying these weights to the total number of constituents and rounding down. Discrepancies from rounding are adjusted by ranking the differences and reallocating constituents to address the largest discrepancies first.
Company Selection within Each Country-Activity Combination:
Within each country and sector, companies are ranked based on their valuation as estimated by the privateMetrics factor model. The selection process picks the highest-valued companies until the designated number for each country and activity is filled. This method ensures inclusion of the most influential and significant players in each sector and market.
Overall, this methodology not only reflects the dynamics of the private markets effectively but also maintains fairness and precision by considering the economic and investment characteristics unique to each region.
PECCS Indices & benchmarks
Customisable by geography, activty, revenue and customer models, lifecycle and value chain.The PECCS indices are a specialized suite within the privateMetrics framework, designed to reflect the nuanced performance of private markets across various segments. These indices leverage the PECCS classification system, which segments private companies by industry, lifecycle phase, revenue model, and geographical location, allowing for a detailed and custom-tailored analysis.
By offering a combination of up to multiple PECCS classes from a database of over a million companies, the indices provide investors with precise, customizable benchmarks tailored to specific investment strategies or portfolio needs, encompassing a broad spectrum of private market dynamics across 130+ countries.
customising PECCS BENCHMARKS
Custom PECCS benchmarks offer several key advantages:
1. Tailored Insights: Investors can create benchmarks that align closely with their specific investment strategies or portfolio characteristics. This customization allows for precise comparison and performance assessment based on unique criteria such as geographic focus, industry sector, lifecycle phase, or revenue model.
2. Strategic Alignment: By mixing and matching different segments of the PECCS classification, investors can develop benchmarks that reflect their actual or intended asset allocation. This ensures that the benchmark serves as a more accurate reference point for evaluating investment performance and decision-making.
3. Enhanced Decision Making: Custom benchmarks enable investors to assess the value and performance of their portfolios against a more relevant market segment, facilitating better-informed strategic decisions, such as asset allocation, risk management, and timing of entry or exit.
4. Avoidance of Broad Market Noise: Unlike broad market indices, custom PECCS benchmarks filter out irrelevant market data, focusing only on segments pertinent to the investor’s specific interests. This results in a clearer understanding of the factors driving performance in the relevant market niches.
5. Flexibility and Scalability: The ability to define benchmarks by combining various PECCS classes and geographies means that benchmarks can be scaled or adjusted as investment strategies evolve or as new data becomes available.
Overall, custom PECCS benchmarks empower investors with the tools to generate finely tuned, strategic insights into the private markets, enhancing the effectiveness of their investment process.
