Journal of Corporate Finance Vol. 81 2023
Benchmarking private equity: The direct alpha method
open access
Abstract
We propose a simple and intuitive measure of the annualized excess return of investments in private equity (PE) funds, as well as in similar vehicles that hold hard-to-values assets. Our ‘Direct Alpha’ method is well-founded in theory and dominates the existing approaches to convert fund lifetime returns into inputs amenable for portfolio-wide optimization. Existing Public Market Equivalent (PME) approaches are either heuristic or involve significant approximation errors. Using real-world PE fund cash flow data, we juxtapose Direct Alpha against nearly all PME methods that have been in broad use.
- DOI
- 10.1016/j.jcorpfin.2023.102360
- Volume
- 81
- Pages
- 102360
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex