We reconcile the major approaches in the literature to benchmark cash flow-based returns of private equity investments against public markets, a.k.a. 'Public Market Equivalent' methods. We show that the existing methods to calculate annualized excess returns are heuristic in nature, and propose...

We propose a simple and intuitive measure of 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 theoretically and dominates the existing approaches to convert fund...