Perspectives

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Private Equity Benchmarking

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Where Should I Start?

Introduction
Benchmarking in private equity is notoriously
challenging. In this paper, we will discuss the causes
of these challenges, analyze some suggested
benchmarks and provide investors in the asset class
things to consider when selecting their private equity
benchmarks. While this discussion will provide general
guidelines, it is important to note that each investors
approach to benchmarking should be tailored to the
investors specific circumstances and program goals.
There are two primary factors an investor should
consider when selecting an appropriate benchmark:
Which implementation method has the investor used
to get exposure to private equity?
Whose success is being measured?
By considering these factors, an investor is better
able to assess whether its specific goals have been
met through its private equity program. This becomes
particularly important when compensation of the
investors in-house team or advisor is linked to how the
program performs versus its selected benchmark. The
three implementation methods we will discuss are:
Investing via funds of private equity funds (funds of
funds)
Investing directly into private equity funds (direct
funds)
Making investments or coinvestments directly into
companies (direct investments)

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We will next consider whose success is being

measured:
The private equity manager (defined as the general
partner [GP]) whether fund of funds or direct
funds that is managing the committed capital
The group investing capital into private equity after
it has been decided to make a strategic allocation
to the asset class (for fund investing, this is defined
as the limited partner [LP] private equity team; for
direct investing and coinvesting, this is defined as
the internal direct team)
The decision to invest in private equity at the
strategic asset allocation level (defined as strategic
asset allocation)
Often, investors in private equity focus on a single
benchmark that they believe is most appropriate
for their entire private equity program. While we
will identify the most appropriate benchmark for
different types of decision makers and for different
implementation routes, we challenge the notion
that private equity programs can be adequately
benchmarked against just one metric, given the
difficulties associated with measuring private equity
performance. We will discuss a more holistic approach
to supplement a quantitative benchmark, examining
the validity of the balanced scorecard concept and
considering how it could potentially be applied to
private equity.

We challenge the notion

that private equity
programs can be adequately
benchmarked against just
one metric.

Private Equity Benchmarking: Where Should I Start? 2

Challenges Associated With Benchmarking Private Equity

Investments
In this section, we will briefly revisit the complications
associated with creating benchmarks in private equity.
We begin by making clear that in our view there is no
perfect solution and no single benchmark that meets
either all the requirements of a good benchmark or
every investors needs. These complications include
the following:
Lack of a readily available universe of transactions
and assets makes it challenging to construct a
replicable index. As such, there is no recognized
index that captures the entire opportunity set
available to private equity managers.
The long private equity investment horizon
whereby success is achieved over a number of
years (e.g., investing heavily in a company in the
early years to achieve success in the long term)
conflicts with the short time frame typically used for
measuring success.
The timing of cash flows is unpredictable.
The j-curve effect1 occurs, where management
fees and setup costs at the start of a fund
investment typically result in significant negative net
performance early in the life of a fund.
As a result, the benchmarks that do exist (e.g.,
comparisons versus listed indices plus premium
or peer group comparisons) struggle to meet the
definition of a good benchmark as defined by the
CFA Institute. Below, we provide our view on why
traditional private equity benchmarks fall short as
compared with the CFA Institutes perspective on what
defines a good benchmark:2
Unambiguous: Often, the private equity universe
cannot be defined, and its weights and composition
are not known in advance.
Investable: Investors are not able to invest in the
whole private equity market. Additionally, listed
private equity benchmarks are not reflective of the
limited partnership universe.
Measurable: Private equity is subject to infrequent
and subjective valuations, so interim performance
figures are of limited value.

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Appropriateness: No benchmark fully reflects the

investable universe for any given investor. However,
we believe existing private equity benchmarks
can be considered appropriate depending on the
implementation method and whose success is being
measured.
Reflective of current investment opinion: The
investor will not have full knowledge of the
investments that comprise the universe.
Specified in advance: Benchmarks cannot be
specified in advance, as the market is constantly
evolving (e.g., fund-raising is uncertain).
Owned: Private equity benchmarks are not integral
to the GPs investment process and procedures; as
such, they are not owned.

The benchmarks that do exist

struggle to meet the definition
of a good benchmark.
Of course, each potential benchmark should be
considered individually, but at an aggregated level,
existing private equity benchmarks fail to meet
the seven properties of a good benchmark listed
above. That said, it is important to determine which
properties are most important to a particular investor.
While being cognizant of the relative qualities of a
given benchmark, we believe appropriateness is the
most important property to achieve, as an appropriate
benchmark provides information that is useful for
measuring success against an investors individual
goals.
This led us to consider applying different benchmarks
to different implementation routes, which in turn leads
us to the conclusion that multiple benchmarks may
be required to monitor the same portfolio depending
on what the private equity portfolio is being measured
against.

Private Equity Benchmarking: Where Should I Start? 3

Benchmarking Methods
The purpose of this section is to outline the key
factors to consider when selecting a potential
benchmark. We will also briefly discuss issues
regarding how to apply each method.

Public Equity Indices

The issues
A public equity index is among the most common
benchmarks applied in private equity. However, it
meets very few of the good benchmark criteria as
defined previously for private equity because:
Public market performance is not directly linked to
value drivers in private equity investments.
Public equity indices are substantially more volatile
over a short-term horizon (or at least appear to be
so).
Differences exist between the performance
methodologies for public equities, which are typically
time-weighted returns, versus private equity, which
uses the internal rate of return (IRR) or moneyweighted returns.
The j-curve effect in private equity can lead to
negative results as described previously.

Why they may be appropriate

There are valid reasons as to why many investors
continue to use public equity indices as a benchmark
for private equity:
Private equity is often funded out of public equities
or expected to achieve a return in excess of public
equities. Therefore, public market performance
serves as a measure of the opportunity cost. This is
consistent with many investors considering private
equity to be a return enhancer as opposed to a
diversifier to listed equities.
Public markets provide a comparison as to how
specific private equity assets are performing against
comparable listed companies.
While, in the short term, the link between public
equity and private equity performance is weak, in the
long term, private equity should provide access to
a premium above the long-term equity risk premium
to compensate for the challenges associated with
investing in it.

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For the reasons outlined above, we believe that public

equity indices are not appropriate as a short-term
measure of performance for a private equity portfolio.
However, as a long-term measure of performance,
public equity benchmarks can be appropriate. That
said, it is important to consider whose success is
being measured against a public equity benchmark.
Public equity benchmarks do provide a good measure
of the success of a strategic asset allocation to
private equity because the decision to invest in private
equity versus the alternative of public equities is
made at this level. Conversely, one can argue that
public equity indices are a flawed benchmark for the
LP private equity team, as it is mandated to invest
a predefined pool of capital in the best-performing
available private equity funds. Their motivation is
outperformance versus alternative private equity funds
rather than outperformance versus the alternative use
of capital (i.e., public equity markets).
On balance, public equity indices represent a
reasonable long-term benchmark for the success of
strategic asset allocation to private equity, regardless
of the implementation route.

How to apply them

As stated above, performance methodologies for
public equities (time-weighted returns) differ from
those of private equity (IRR or money-weighted
returns). Taking a simplistic approach and comparing
public equity returns (which are measured in real time)
to private equity returns (which are typically assessed
quarterly and annually with a significant time lag)
will result in large tracking errors and noise over
the short term. Resolving this becomes critical when
considering compensation based on beating a public
equity benchmark.

On balance, public equity indices represent

a reasonable long-term benchmark for the
success of strategic asset allocation to private
equity, regardless of the implementation route.

Private Equity Benchmarking: Where Should I Start? 4

A widely accepted methodology for doing this was

developed in the mid-1990s and is known as the Index
Comparison Method,3 or more recently, the Public
Market Equivalent (PME) approach.4 The basic premise
of this approach is to allow a like-to-like comparison by
translating time-weighted returns to money-weighted
returns. This is done by calculating the hypothetical
cash returns obtained by buying and selling a public
index to mirror the cash flows of the private equity
investment. A capital call would trigger the buying of
the index, while cash distributions would result in the
selling of the index. As with any benchmark, the choice
of indices becomes the most important factor in
creating a fair comparison under this approach once the
cash flow adjustment is made. It is therefore important
to ensure that the benchmark chosen is a total return
index where dividends are reinvested, as this is the
basis by which private equity partnerships operate.
A variation of PME is PME+, which further adjusts
distributions through a scaling factor such that the
final valuation of the public market index is equivalent
to the private equity net asset value (NAV). This
adjustment may be necessary if the private equity
portfolio significantly outperforms public equities and
results in high cash distributions that trigger an index
sell-off and an ensuing net short position. Although
PME+ does ensure a positive end valuation for the
benchmark index, it is still possible (in extreme
scenarios) for the investor to experience the equivalent
of an index short at some point during the life of the
fund, affecting the results of the comparison.
Despite these issues, one of the most attractive
features of both PME and PME+ is their conceptual
simplicity. They can also be adjusted for factors, such
as leverage, to reflect the additional risks associated
with higher levels of debt versus a passive public
market investment.
Regardless of which approach is adopted, private
equity is targeting a much smaller universe of a
somewhat idiosyncratic nature, and the time required
to realize longer-term value creation can be significant.
Therefore, time periods used to assess performance
should still remain relatively long, with less weight
placed on the early years of the investment period due
to issues associated with the j-curve.

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Peer Group Indices

The issues
Another popular method of benchmarking is to
compare portfolio or manager performance against
general industry results achieved using a peer group
analysis. However, peer group indices fall short of
the definition of a good benchmark for a number of
reasons, including:
Peer group indices are not investable, as investors
will not have access to all the managers that
eventually make up the index.
The median performer is not known in advance,
meaning it fails to be unambiguous.
Peer group indices include gaps in data, selfreporting and survivorship bias.
Self-reporting means that the valuation
methodologies between managers may not be
consistent and can vary widely.

We believe that peer group

indices are useful as both
a short- and long-term
benchmark for measuring

Why they may be appropriate

the success of a direct

Despite the issues noted above, peer group indices

are commonly used for these reasons:

fund manager or a fund of

funds.

Peer group indices are measurable and updated on

a reasonably frequent basis.
Potential peer groups can be created across a host
of different investment styles (e.g., buyouts versus
venture capital versus distressed) as well as various
geographies. Therefore, a comparison can be made
to common return drivers.
They are the closest representation of the
performance of the universe of available managers
for selection.
The peer group is also subject to the j-curve,
meaning comparisons can be made over all time
frames.
We believe that peer group indices are useful as both
a short- and long-term benchmark for measuring the
success of a direct fund manager or a fund of funds.
Clearly, the more mature the portfolio, the more
reliable the peer group index. As such, we recommend
not placing too much emphasis on portfolios that
are less than four or five years old because of the
immaturity of the assets. (Each portfolio company will
likely have a weighted-average holding period of about
two years.)

Private Equity Benchmarking: Where Should I Start? 5

Since the peer group of a particular fund is the closest

approximation to the available opportunity set, we
consider these indices appropriate for measuring the
success of both the LP private equity team and GPs.

How to apply them

Some private equity peer group indices are relatively
deep and have evolved to allow for credible analysis
across various factors (e.g., strategy, geography and
fund size). Without going into the specifics of each, all
suffer to varying degrees from the issues outlined in
this section.

Absolute Return Benchmarks

The issues
Absolute return benchmarks in private equity have
tended to focus on a reasonable long-term expectation
for the level of returns expected from public equity
markets plus a premium to reflect the challenges
associated with investing in the asset class, notably
the fees and illiquidity. This has the following issues:
They are not investable, so they do not represent the
true opportunity cost of capital.
There is limited consensus as to what level of longterm returns to expect from public equity markets.
They ignore both historic and prevailing market
returns.

Why they may be appropriate

Several arguments can be made for using absolute
return benchmarks:
They provide a long-term proxy of the returns
expected from equity markets that is a sensible
performance comparator not influenced by equity
market volatility.
They are appropriate when investors make direct
investments on their own behalf and have a specific
return target.
Since absolute return benchmarks are single figures,
we do not feel they are appropriate as short-term
measures. However, for more mature portfolios, they
may be useful when restricted to the scenarios noted
above. As such, they can have value in assessing
internal direct team performance as well as at a
strategic asset allocation level. An absolute return
benchmark is rarely suitable, however, as a standalone measure for assessing investors whose sole
role is to deploy capital into private equity.

How to apply them

We primarily see absolute returns as a reflection of
an investors expectations of long-term equity market
performance plus a premium to compensate for the
costs and challenges associated with investing in

Factors to Consider When Selecting Appropriate

Peer Group Indices
Check the data sources to ensure they are both reliable and sustainable. A good test is to assess the
size of the relevant data sets for each vintage year.
Ensure sufficient coverage of funds in the particular subset under consideration (i.e., strategy,
geography or fund size). Not all databases are equally well covered in different areas of the market.
Ensure that the benchmark chosen can be customized appropriately.
Once indices are selected, reassess at least annually based on each of the points above, since peer
group data sets evolve over time.
Because no single peer group is perfect, we recommend using at least two to maximize the relevance
of the output. A much-cited statistic is that more than 70% of funds can claim first-quartile performance
depending on the benchmark provider and the vintage year chosen, so caution is clearly required when
using peer group indices.

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Private Equity Benchmarking: Where Should I Start? 6

private equity. This premium has often been set at

approximately 3% to 5% net of all fees, which we
believe to be a fair expectation of the appropriate
outperformance that a successful private equity
program or fund should deliver.
However, this application is not necessarily appropriate
for those investing directly in companies, something
we have seen increasingly in recent years among
larger global private equity LPs. Investors targeting a
specific rate of return should consider adopting a costof-capital approach.

Investors targeting a specific

rate of return should consider
adopting a cost-of-capital
approach.
In the context of private equity, the cost of capital
is meant to represent the discount rate used to
assess new investment opportunities. In the purest
academic sense, the true cost of capital will reflect
each investments individual risk and return properties5,
so it can be used to form a view on the comparative
attractiveness of numerous opportunities available to
an investor.
This concept can be extended to apply to the portfolio
of an investor making direct investments into companies or assets, particularly if there is a relatively
consistent risk and reward framework. To the extent
that there are multiple teams with different mandates,
a different cost of capital will apply, something that is
particularly important if the benchmark is being used
to determine compensation.

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The cost of capital has the following main

components:

Real risk-free rate of return

Expected inflation
Equity risk premium
Various other risk premiums (e.g., illiquidity and
control)

We would add the following risk premiums/discounts

for private equity investments:

Lack of either marketability or liquidity

Additional leverage versus public equity markets
Less diversification
Varying levels of control over the underlying
investment

As an example of how this could work in practice,

we can look at the potential premium for a lack of
diversification in a private equity program compared
with public markets. Some studies suggest that the
necessary diversification premium in a private equity
portfolio could be worth as much as 100 basis points
a year.6
Given the components of the cost of capital, it could
also be viewed as a benchmarking measure that is
a hybrid between public market and absolute return
measures, reflecting changes in risk aversion due
to market movements but smoothed over the short
and medium term. Interestingly, a McKinsey study7
observed that the cost of capital tends to be relatively
stable over time, even in periods of market volatility.
Despite these attractive features, we urge caution
when using this measure because it is challenging to
ensure that the premiums/discounts are appropriate
to the investors strategy. That said, we think the
cost-of-capital approach is worthy of consideration as
a benchmarking tool for internal direct teams making
direct investments or coinvestments into companies
or assets.

Private Equity Benchmarking: Where Should I Start? 7

Selecting a Benchmark
In this section, we discuss the critical elements of a
benchmark for each implementation route.

Funds of Funds
What should the benchmark measure?
When investing in funds of funds, the critical elements
measured are:
The investors ability to perform due diligence and
select high-quality fund of funds managers
The fund of funds managers manager selection
capabilities and portfolio construction success
(i.e., the ability to overweight or underweight certain
strategies, geographies and segments of the market
and to select attractive themes)
We also believe, though this view is not broadly
accepted, that a fund of funds manager should also
overweight and underweight vintage years depending
on market attractiveness and the quality of managers
raising funds in a given vintage year.

Recommended benchmarks
The fund of funds manager is not being measured
against any alternative cost of capital outside of
what it deemed to be a private equity investment.
We recommend the following benchmarks to measure
the success of the GP, LP private equity team and
strategic asset allocation:
GP: We believe the benchmark should be driven
by the performance of all direct private equity
funds available during the years the manager has
to commit its capital this is the fund of funds
opportunity set. This analysis should be net of fees
in order to check that the additional layer of fund
of funds fees is not more than any outperformance
generated.
LP private equity team: A benchmark of funds of
funds performance is suitable as it aligns with the
LP private equity teams opportunity set. However,
the team might consider a direct funds investment
if it cannot find a suitable high-quality fund of
funds manager. In this case, they should use the
benchmark driven by the performance of all direct
funds.

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Strategic asset allocation: We believe the

opportunity cost, or at least a fair representation of
the alternative use of capital, will typically be public
equity markets. Either a public equity benchmark or
a long-term approximation of equity market returns,
plus the required premium given the features of
the asset class (as described in the cost-of-capital
approach), are suitable.

Direct Funds
What should the benchmark measure?
When investing through direct funds, the critical
elements measured are:
The investors fund due diligence, manager selection
and portfolio construction capabilities
The managers ability to access, select and make
high-quality investments compared with peers
The managers portfolio construction capabilities
The managers ability to add value to justify the
additional fees associated with investing in private
equity rather than investing in public equities

Recommended benchmarks
The answer is less straightforward than it is for funds
of funds:
GP: For a direct fund manager, there are two
possible routes for benchmarking. First, the
manager has to demonstrate that it can invest the
capital more profitably than an investor could have
passively done in public equity markets. We would
urge caution over applying this benchmarking metric
too early in the life of a fund. Second, the manager
should show that it is able to outperform peers. We
recommend doing both, given the different purposes
of these two benchmarks introducing the public
equity benchmark to complement the peer group
benchmark once the fund is substantially invested.
LP private equity team: Both a fund of funds, as the
alternative implementation route, and direct funds
benchmark could be considered as the opportunity
cost for an investor selecting direct funds. We
recommend the direct fund universe, as it is a more
comprehensive representation of the funds the
investor could have chosen.

Private Equity Benchmarking: Where Should I Start? 8

 Strategic asset allocation: Regardless of the

implementation route, the private equity portfolio
must demonstrate it can beat the alternative use
of capital.

Summary
Figure 1 summarizes our views on the appropriate
benchmark, considering both the implementation route
and whose success is being measured.

Direct Investments
What should the benchmark measure?
Direct investing by an internal investment manager is
becoming increasingly common among larger global
LPs. Here the critical elements being considered are:
The investors ability to access, select and make
high-quality investments, and add value to them
(where appropriate)
The investors portfolio construction capabilities
The investors ability to select investments that fit
with the profile of the stated mandate, if there is a
specific risk-and-return framework

Recommended benchmarks
The appropriate benchmark depends a great deal
on the investors mandate, and applies both at the
internal direct team and strategic asset allocation
level:
Ignoring the last point above for the time being, a
public market benchmark plus a premium could be
appropriate. However, we prefer a long-term equity
market assumption under the condition that the
investor is not subject to the same need to generate
liquidity as a private equity manager acting on behalf
of third-party investors.
If the last consideration above is an important
factor for the investor, we recommend that the
cost-of-capital approach be employed. It is more
complicated and requires significant thought
regarding an investors mandate, but it will provide a
better reflection of whether the investor is meeting
its specific goals.

So far, we have determined that it is difficult to find

a single metric that satisfies all the requirements of
a benchmark. While the most appropriate benchmark
to use depends on the entity being measured and
how it invests in the asset class, and the selection
of an appropriate benchmark is an integral part of
the overall monitoring process, no single metric can
provide a complete analysis of either the investment
managers or investors competence. As a result, we
believe it is worth supplementing a quantitative
benchmark with a more qualitative monitoring process
based on the balanced scorecard concept created by
Robert Kaplan and David Norton.8 This management
tool is designed to look beyond traditional financial
measures of performance. The scorecard translates
a companys vision and strategy into a series of
coherent performance measures based on the fact
that success cannot and should not be represented
by a single figure.
Similarly, assessing the success of investment
managers, investment professionals and portfolios
ideally incorporates a number of factors, which may
be qualitative and quantitative, as well as short and
longer term. The key behind the balanced scorecard
concept is to identify the drivers that will lead to
success (however defined) and that can then be
measured and managed in the shorter term to
maximize the likelihood of success in the longer term.
The key benefit of the balanced scorecard is that it
monitors mandates where performance against a
relative benchmark over shorter periods does not offer
a satisfying result.

Figure 1. Choosing an appropriate benchmark

Funds of funds

Direct funds

Direct investments

GP

Direct funds peer group

Direct funds peer group and public

equity (once sufficiently mature)

LP private equity
team

Fund of funds peer group or

direct funds peer group

Direct funds peer group

NA

NA

Internal direct
team

NA

NA

Long-term equity assumption + X%

or the cost-of-capital approach

Strategic asset
allocation

Long-term equity assumption + X%

Long-term equity assumption + X%

Long-term equity assumption + X%

or the cost-of-capital approach

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Private Equity Benchmarking: Where Should I Start? 9

We believe that private equity and indeed broader

private markets/illiquid strategies fit into this
category for the following reasons:

Figure 2. A balanced scorecard

Long-term
considerations

Illiquid strategies are subject to the j-curve effect.

The actual holding value of assets is often
subjective until realizations are achieved.
Taken together, multiple measurements allow for a
more holistic view of the success of an investment or
portfolio. Adapting this approach for private equity, the
four quadrants of a balanced scorecard might have the
following sections:
Principal target measures: Investment performance
against a long-term benchmark and other target
measures (i.e., the long-term goal of the portfolio or
investment)
Process measures: Qualitative comments from
those monitoring the portfolio or investment,
considering softer factors related to management of
the portfolio or investment
Support measures: Asset (or portfolio) performance
against underlying business plans (or portfolio
goals) on both a backward- and forward-looking
basis
Risk: Incorporating a qualitative and potentially
quantitative view of risk at the portfolio or
investment level (e.g., the amount of leverage and
potential for covenant breaches)

Taken together, multiple

measurements allow for a more
holistic view of the success of
an investment or portfolio.

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Short-term
considerations

Principal target measures

Success is...
Longer-term performance
versus benchmark

Process measures
Success requires quality
processes:
Quality of investment
processes
Quality of output

Support measures
Success probably involves:
Meeting of underlying
business plans
Annual performance versus
short-term indicators
Distributions/yield

Risk measures
Success requires good risk
control:
Portfolio diversification
Absolute volatility

Quantitative factors

Qualitative factors

Figure 2 provides an illustration of the balanced

scorecard framework described above, showing the
relationship between quantitative and qualitative
factors as well as short- and long-term considerations,
and how each of the four quadrants fits along these
axes.
The above scorecard is an illustration that would
be tailored, but it shows that any single benchmark
for private equity is likely to fall short of one or
many of the conditions of a good benchmark. A
better approach may be to adopt a combination of
quantitative benchmarks and qualitative monitoring
against predetermined goals. This should provide a
more balanced view of performance that ensures both
quantitative and qualitative measures over both shortand long-term periods are adequately captured.

Private Equity Benchmarking: Where Should I Start? 10

Conclusion

Further Information

Despite much academic literature on the subject, there

are no universally accepted methods for benchmarking
in private equity. In this paper, we have discussed the
most widely recognized methods, such as public equity
market comparisons, and some new concepts, such
as the cost-of-capital method. We have also attempted
to consider both the implementation method and the
benchmark purpose in formulating best practice. With
this in mind, we recommend that investors consider
the following when selecting their desired benchmark:

If you would like to discuss any of the matters explored

in this paper, please contact your Towers Watson
consultant or:

Changing the benchmark according to the

implementation route, as the purpose and/or goal of
the allocation may be different
The purpose, motivations and roles of those
being benchmarked to ensure that the choice of
benchmark both matches their goals and does not
misalign interests
The appropriate short- and long-term measures,
particularly important when benchmarking analysis
is used as a basis for compensation, as applying a
single benchmark can create misalignment
Incorporating a balanced scorecard approach to
ensure a more holistic view of both qualitative and
quantitative factors affecting risk and return

Gregg Disdale
+44 20 7227 2558
gregg.disdale@towerswatson.com

About Towers Watson

Towers Watson is a leading global professional services
company that helps organizations improve performance through
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Copyright 2012 Towers Watson. All rights reserved.

TW-NA-2012-23860

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Luba Nikulina
+44 20 7227 2559
luba.nikulina@towerswatson.com
Mark Calnan
+44 20 7598 2819
mark.calnan@towerswatson.com

Footnotes
1

J-curve is used to illustrate the historical tendency of private equity funds to deliver negative returns in early years due
to management fees, transaction costs and underperforming investments that are identified early and written down.
Strong-performing deals are typically written up later than underperforming deals are written down due to managers
tendency to value portfolio companies conservatively.

Managing Investment Portfolios: A Dynamic Process, third edition, edited by John Maginn, Donald Tuttle, Jerald Pinto and
Dennis McLeavey, CFA Institute

Long, A.M. and Nickels, C.J. (1995), A Private Investment Benchmark. The Index Comparison Method addresses the
problems inherent in comparing dollar-weighted private equity returns (IRRs) to public equity indices and the use of
dollar-weighted IRRs relative to pooled IRR data. It is based on work leading up to a paper published by Richards
& Tierney in July 1995 and is also known as the Long-Nickel Method. See also Richards & Tierney, Inc. (1995),
Opportunistic Investing: Performance Measurement, Benchmarking and Evolution.

Rouvinex, C. (2003). PME is another name for the Index Comparison Method as first expressed by Christophe Rouvinex
of Capital Dynamics.

Pratt, S. and Grabowski, R. (2008), Cost of Capital: Applications and Examples. New Jersey: Wiley, third edition

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