Traditionally, private equity fund returns have been measured using IRRs and multiples, which allow for direct comparison for funds within the same peer group. However, investors are increasingly looking for alternative measures of performance which allow for comparison with other asset classes within their portfolios. Using net-to-LP performance data for 8,300 individual private equity partnerships from Preqin’s Performance Analyst, Preqin has developed a suitable measure: the PrEQIn Private Equity Quarterly Index. The model uses quarterly cash flow transactions and reported NAVs from funds that have raised aggregate capital of over $4.6tn.
Preqin calculates indices for the various subsectors of the industry including buyout, venture capital, real estate, funds of funds and distressed private equity funds. By also including the S&P 500 Total Return Index, it is possible to gain an insight into how the private equity industry has performed during this period compared to the public market.
In the most recent quarter, five of the six private equity strategies, as well as the S&P 500, show quarterly increases. The PrEQIn Distressed Private Equity Index has decreased from 479.4 as of 30 September 2014 to 478.1 as of 31 December 2014; however, it remains the top performing index above PrEQIn Buyout Index in the period since 2000. The smallest quarterly increase was experienced by the PrEQIn All Private Equity Index, which increased from 290 as of 30 September 2014 to 297.2 as of 31 December 2014. The largest quarterly increase was experienced by PrEQIn Real Estate Index, which increased from 277.5 as of 30 September 2014 to 294.8 as of 31 December 2014. The PrEQIn Venture Capital Index is now the closest it has ever been to reaching 100, at 97.5. This index has been underperforming the industry as a whole since 31 December 2000, and it is the only index to have consistently underperformed the S&P 500.