How to Benchmark Private Capital... and How Not to

 

New Paper By Burgiss Research

Private capital benchmarks are used for a variety of purposes, including targeting a return, comparing investments to public market benchmarks, evaluating the quality of decision-making, and providing data for compensation.

Over the last year, we’ve been taking a hard look at private capital benchmarks. In our recorded webinar, “Constructing a Benchmark: The Good, the Ugly, and the Bad,” Luis O’Shea, Head of Applied Research at Burgiss, explored some of the pitfalls of common practices and hinted at some resolution of common concerns.

The not-so-simple question benchmarks help to answer is: “How do you determine whether your private capital portfolio has under- or over-performed?” In stark contrast to listed equities, there isn’t consensus on how to build a private capital benchmark.

In this paper we advance the discussion and describe a recommended approach for constructing a composite private capital benchmark, emphasizing the importance of pooled measures. In it, we also propose a methodology for computing portfolio ranks, which allows the generation of a report containing both pooled and rank measures at all levels of a reporting hierarchy.

A second important goal of this paper is to illustrate the possible downsides to using benchmark methodologies different from the one we propose.

 
 

0.0 0.5 1.0 1.5 2008 2010 2012 2014 2016 2018 Inception Date Commitment

1 2 3 4 2010 Q1 2012 Q1 2014 Q1 2016 Q1 2018 Q1 Calendar Quarter Compounded Quarterly Returns Benchmark (Portfolio Weights) Benchmark (Pooling Methodology) Portfolio

 
 

Get a copy of the executive summary of this report here.

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Amanda VanNess