Measuring private equity returns and benchmarking against public markets

Private equity is still a relatively young asset class, with some unique characteristics. One feature is the very irregular timing of cashflows, and a consequence of this is that private equity relies on measures of returns that are not standard in other asset classes. As such, new investors can be unclear or unaware of the differences between the common methods for measuring private equity performance and comparing it with returns from other asset classes. This paper sets out different methods for measuring private equity returns that are commonly used in the industry and constructs aggregate indices for the UK asset class. It also considers methods for comparing private and public equity returns and demonstrates the importance of considering cross-sectional variation between public and private equities.