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May 14, 2019

PME for Industry-Level Analysis: Why it Matters

Many LPs are already leveraging PMEs for portfolio analysis. Moreover, they are familiar with how a singular fund, sub-section or entire portfolio compares against various public indices. However, few LPs are using PME for industry-level analysis as a whole.

Leveraging PME for industry-level analysis can be valuable for LPs when:

  • Determining what style or geography has consistently outperformed a public index over various years
  • Presenting to an investment board or committee the importance of investing in the private markets
  • Understanding how the private market performance compares to the public markets over different economic cycles

PME for Industry-Level Analysis: Example Usage

Technology solutions, such as Cobalt LP, enable LPs to directly access this insight. For example, Hamilton Lane leverages PME for industry-level analysis in their Annual Market Overview. The charts below highlight how Hamilton Lane is utilizing Cobalt to present this information by style:

The above charts highlight that even though the public markets have seen strong growth for a long duration, the private markets still offer the opportunity to outperform the public markets. Furthermore, while many LPs focus on picking a top quartile manager, the above charts can offer some reassurance. In some cases, even the average performance of the private markets is higher than the public markets return.

This unique analysis is just one example of how using PME for industry-level analysis can be leveraged using a technology platform such as Cobalt LP.

Learn more about PME through our whitepaper here.

Reach out to learn more about CobaltLP here.

The indices presented for comparison are the “MSCI World” and “Credit Suisse Leveraged Loan”, calculated on a Public Market Equivalent (PME) basis. The PME calculation methodology assumes that capital is being invested in, or withdrawn from, the index on the days the capital was called and distributed from the underlying fund managers. Contributions were scaled by a factor such that the ending portfolio balance would be equal to the private equity net asset value. The scaling factor is found by taking the sum of all shares sold (SS), the sum of all shares purchased (SP) and calculating the number of shares the ending value is worth (SEV). Dividing SEV + SS by SP solves for the PME scaling factor. The scaling of contributions prevents shorting of the public market equivalent portfolio in order to match the performance of an outperforming private equity portfolio. Realized and unrealized amounts were not scaled by this factor. 
The MSCI World Index tracks large and mid-cap equity performance in developed market countries. The Credit Suisse Leveraged Loan Index represents tradable, senior-secured, U.S. dollar-denominated non-investment-grade loans.
The indices are presented merely to show general trends in the markets for the relevant periods shown. The comparison between Hamilton Lane performance and the index is not intended to imply that a fund’s or separate account’s portfolio is benchmarked to the index either in composition or level of risk. The index is unmanaged, has no expenses and reflects the reinvestment of dividends and distributions. The spreads are provided for comparative purposes only. A variety of factors may cause an index to be an inaccurate benchmark for any particular fund or separate account and the indices do not necessarily reflect the actual investment strategy of a fund or separate account.
In Data, PE 101, Portfolio Analytics, Private Equity Metrics
by Cobalt LP
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In 2016, Hamilton Lane, a global private markets asset management firm with more than 28 years of experience, together with Bison, a cutting-edge software solutions firm, brought Cobalt to the market. This unique partnership created a leading private markets platform with a robust product suite of solutions for both GPs and LPs.

In 2020, Hamilton Lane wholly acquired the Cobalt LP business from Bison, fully bringing the limited partner product in house. Hamilton Lane continues to enhance capabilities and drive the Cobalt LP vision forward by delivering data, analysis, reporting, and diligence solutions to limited partners.

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