Cambridge Associates has developed a benchmarking methodology designed to help institutional investors gauge performance of their private investment partnerships relative to publicly traded investments.
Institutional investors frequently seek new insights into the performance of their private investment partnerships (e.g., private equity or real assets funds) relative to publicly traded investments. Accordingly, institutional investment advisor Cambridge Associates has developed Modified Public Market Equivalent (mPME)1, a new benchmarking methodology designed to provide more clarity on the issue.
“A fundamental question that investors in private funds ask is, ‘Are the returns of my private investments worth the additional illiquidity and administrative burden that I am taking on?’ We believe public market equivalent analyses offer the best answer to that question,” said Jill Shaw, senior private investment specialist at Cambridge Associates. “Our mPME method allows investors to evaluate what a private investment’s performance would have been in a public market setting.”
The same metrics typically used to evaluate private investments, like multiples of invested capital and internal rates of return (IRR), can also be generated in mPME analyses. If the private fund’s returns exceed the mPME returns, the private fund has added value relative to the public market. Investors are then in a better position to judge whether or not the value added by the private fund was sufficient to offset the illiquid nature of the investment.
“While there are a number of public-to-private methods available, institutional investors have been seeking a methodology that is intuitive, consistent, and broadly applicable,” said Shaw. “Because mPME enables investors to consistently quantify private versus public value added across funds, strategies and portfolios, with a minimum of external assumptions and adjustments, we believe the methodology moves us closer to that standard.”
mPME data are now reported in Cambridge Associates’ quarterly benchmark reports that cover global private investment strategies. Several reports are made publicly available here: https://www.cambridgeassociates.com/proprietary_benchmarks.html.
For more information on these benchmarks, please visit: https://www.cambridgeassociates.com/pdf/pr/CA%20PE%20and%20VC%20Benchmarks%20Overview%20-%20Definitions%20and%20FAQs.pdf
1 Patent pending
About Cambridge Associates
Founded in 1973, Cambridge Associates is a provider of independent investment advice and research to institutional investors and private clients worldwide. Today the firm serves over 950 global investors and delivers a range of services, including investment consulting, outsourced investment solutions, research and tools (Research Navigator(SM) and Benchmark Calculator), and performance monitoring, across asset classes. The firm compiles the performance results for over 5,300 private partnerships and their more than 67,000 portfolio company investments to publish proprietary private investments benchmarks. Cambridge Associates has more than 1,100 employees serving its client base globally and maintains offices in Arlington, VA; Boston; Dallas; Menlo Park, CA; London; Singapore; Sydney; and Beijing. Cambridge Associates consists of five global investment consulting affiliates that are all under common ownership and control. For more information about Cambridge Associates, please visit www.cambridgeassociates.com.