Why is Pointless Market Equivalence Used if Not for the Internal Rate of Return?

– Public market equivalent (PME) methodologies for benchmarking private equity have not addressed the limitations of the internal rate of return (IRR).
– PME does not reflect the economic reality of private equity investing and is even worse than the IRR.
– PME is not a risk-adjusted metric and fails to provide clear market standards for measuring the beta of a PE fund.
– Generalized PME-based benchmarking exercises lack consistent underlying data and misrepresent the cash and equity nature of self-liquidating private funds.
– PME and IRR should be confined to the realm of single asset valuations.
– PME has different configurations, including Long-Nickels PME, PME+, and Kaplan-Schoar PME.
– Both IRR and PME lack consistency in accounting for the amounts and timing of investments and disinvestments and are impacted by the use of subscription lines and other financing tools.
– PME’s volatility noise and mechanics miss the economic substance of PE managers’ investment styles.
– PME’s relative performance measurement does not capture the full dynamics of private market investments from either a GP’s or an LP’s perspective.
– Proper benchmarking tools, such as the DaRC time-weighted, duration-based approach, should consider all of private equity’s investment features.