May 20, 2019
What is a PME?
The public markets measure returns using a time weighted return while the private markets use an IRR. So how can you compare these two asset classes with different return measures? This exact question is how PMEs were born. A PME represents the opportunity cost of investing into the private markets relative to what would have happened if you invested in a public markets index.
The History of PMEs
The Long Nickels PME was the first PME methodology for simulating an investment in a public markets index. This simulated investment strives to replicate the money in and out of the private markets investment against the selected public markets index. However, the Long Nickels methodology was not perfect and had some inherent flaws. Further methodologies, such as the Bison PME, seek to correct these flaws.