The private markets are an asset class where detailed, high quality performance data is incredibly difficult to come by. What gives? The Data ChallengeĮasily the highest hurdle to creating a consensus, high quality private markets benchmark is the scarcity of private markets fund performance data. There is disagreement among the private markets community on what is the “best” performance or technique metric to use. ![]() The composition of some private markets benchmarks is ambiguous. Most private markets benchmarks are not, in practice, investable. Thus far, all private markets benchmarks have failed to fulfill the CFA criteria. There is a menu of quality benchmark options available for nearly any style (geographic specific, sector specific, etc.) of public market investment.īut what about benchmarks in private markets? We’ve been investing in private markets at Hamilton Lane since Boyz II Men’s first platinum album was released, so surely you would assume that we have come across a private market benchmark in our 30 years of existence that checks all of the boxes above. Source: Bailey, The Journal of Portfolio Management, Spring 1992Ĭommonly used benchmarks for publicly traded assets, like the S&P 500, the Russell 3000 or the Barclays Aggregate Bond Index, meet the criteria above. The investor should have the option of adopting a totally passive approach by investing in the benchmark itself without disruption of the marketīenchmark should be consistent with the style of the investment manager whose performance is being gaugedīenchmark computation should be constructed prior to the start of an evaluation periodĪll participants in the market must be able to have current knowledge of the benchmark The investor should be able to calculate returns to the benchmark reasonably frequently Names and weights of all portfolio securities in the benchmark should be clearly delineated We’re not the first group to show these criteria (and we won’t be the last) but we’ll repeat them here since they’re important: But, if a global listed equity benchmark (the MSCI ACWI in this case) returned 33% in the year leading up to July 30, 2021, that 10% return may not sound so good.Īnyone doing research on investment management benchmarks has likely stumbled across the CFA Institute’s criteria for an ideal benchmark. ![]() How else would you know whether the 10% return your public equity portfolio generated last year is cause for celebration or cause for reevaluating how your portfolio is managed? In a vacuum, that 10% return may sound attractive. ![]() In investment management, benchmarking is a critical part of assessing an investment portfolio. It’s easy to get two Philadelphians to agree that running a mile in four minutes is fast, but good luck getting them to agree on the best spot to order a cheesesteak (though most would agree that the roast pork sandwich, not the cheesesteak, is the true king of Philadelphia sandwiches). Some benchmarks are better and more objective than others. Or, if you happen to be visiting Hamilton Lane’s Philadelphia HQ, John’s Roast Pork for cheesesteaks, Vincent Fumo for political corruption, and Sam Hinkie for excellence in general managing.Īll of these things are benchmarks: a measuring stick we use to assess the relative success or failure of a venture. Zero to sixty miles per hour in three seconds.
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