Private
Market
Comparables
robust yet representative comps matter to serious investors
It has been demonstrated repeatedly that there will never be enough observable private market transactions to build comparables that both representative and representative .
Yet, investors need valuation benchmarks to gauge the level of market prices before making a new investment, when reporting the value of existing portfolio companies and even nowCasting the NAV of certain financial products.
Serious investors with a fiduciary duty need current market price estimates to decide to enter or exit private investments and to report valuations to trustees and plan members in a way that represents the fair value of holdings.
Using PRIVATEMETRICS to anchor the market price of private assets
privateMetrics is built by shadow pricing hundreds of thousands of private companies, including several hundred private infrastructure companies. While the privateMetrics asset pricing model does not predict the exact price of each company, it does predict the average price in each market segment with a very small margin of error. Hence, privateMetrics data can be used to create valuation benchmarks that are both current and robust.
Next, privateMetrics data can be customised to represent the systematic characteristics of a given company e.g., a B2C mid-size, low profit and highly levered with subscription-based revenues. With such characterisation of the benchmark with its sector, a representative 'Anchor' of the current fair value of the asset is created. This Anchor is also robust because it is built from several hundred data points thank to the breadth of the privateMetrics shadow price data.
To this market price anchor, investor can add any idiosyncratic adjustments they deem necessary and that they are the best placed to know and document.
The privateMetrics Market Price Anchor is updated monthly, thus stays dynamic and never becomes stale the way appraisal NAVs do. The systematic characteristics of the firm can also be adjusted over time e.g., the same firm could increase profits and reduce debt. With this approach, the best estimate of a firm's fair market (exit) value and its evolution over time can be sourced easily.
BUILD A market price anchor IN Three SIMPLE STEPS USING PRIVATEMETRICS
Select the relevant market segment
Identify the PECCS or TICCS market segments corresponding to a given investment e.g., Contracted Wind Farms in Europe, or Mature B2C Healthcare Services in the U.S.
Define the Systematic Risk Profile of the Asset
Likewise, the asset is exposed to the key systematic risk factors identified in the privateMetrics asset pricing models for private equities or private infrastructure. Information about the 'betas' of each asset such as Size, Profits, Leverage, etc. can be used to query the privateMetrics database.
Build a market price Anchor and adjust it
Combine the PECCS or TICCS profile of the asset with its systematic risk profile to build a query for the privateMetrics API and retrieve comparables for multiples (EV-to-Ebitda, Price-to-Book, etc.), discount rates and risk premia, etc. Updated monthly with the latest transaction price data.
Want to know more?
Contact a member of our team.privateMetrics® insights
the EDHEC Infrastructure & Private Assets Research Institute
