Using Cobalt’s updated fund level benchmarks for Q2, we are able to run analysis on how IRR across different private market strategies compares to the appropriate public market equivalent. Therefore, we are able to understand historic private markets performance and use that data to drive better business decisions. Scroll to see our key takeaways when comparing Private Equity, Private Credit, and Private Real Assets to the MSCI World PME.
October 30, 2020
- Over each time horizon in the charts shown above, private equity has managed to outperform all other private markets strategies.
- Despite having lower rates of return than private equity, both private credit and private real assets can offer portfolio diversification benefits, such as stable distributions and inflation hedging.
- The impact of COVID-19 returns appears to have adversely affected the MSCI World PME the most, relative to all other private markets strategies.
IRR – The Internal rate of return (IRR) is the implied discount rate or effective compounded rate of return that equates the present value of cash outflows (distributions + remaining value) with the present value of cash inflows (contributions) since inception. The displayed IRR is annualized unless otherwise noted.
MSCI World Index – The MSCI World Index tracks large and mid-cap equity performance in developed market countries
PME (Public Market Equivalent) – Calculated by taking the fund cash flows and investing them in a relevant index. The fund cash flows are pooled such that capital calls are simulated as index share purchases and distributions as index share sales. Contributions are scaled by a factor such that the ending portfolio balance is equal to the private equity net asset value (equal ending exposures for both portfolios). This seeks to prevent shorting of the public market equivalent portfolio. Distributions are not scaled by this factor. The IRR is calculated based off of these adjusted cash flows.