Now that you have chosen the methodology and index, it’s time to interpret the results. Whether it’s a peer benchmark or PME analysis, the important story to tell is not the snapshot (a single quarterly datapoint) but the trend. One year provides more context but we think a three year view offers a clearer picture of how a fund or fund family is performing against the public markets.
In the above example, I plotted the North American All PE IRR against the Bison PME IRR for the Russell 3000 index. If I were a GP presenting this as my fund’s PME analysis, there are several key points that I would emphasize with LPs.
- My fund is outperforming the public markets by 3.2% through Q3 2015.
- My fund has averaged 3.1% PME alpha over the last three years.
- The markets have had a strong run over the last few years but our fund’s PME alpha never dipped below 2%.
PME analysis is here to stay as an LP analysis tool. Whether a GP is fundraising or performing their quarterly investor relations responsibilities (quarterly reports and quarterly update calls with LPs), it is important for GP’s to be knowledgeable about PME. A good IR team should have the answers to the questions discussed above. More importantly, they will have a well-crafted message that emphasizes the fund’s strengths.Read More