Benchmarks for private market investments - Public indexes to gauge private investments.

In this article the authors offer a new methodology for evaluating the performance and risk of buyout investments, which represent the largest share of a growing asset class called ''private investments.'' They show how public market indexes, Like the S&P 500 index, can be reengineered to form a customized ''buyout index'' that mirrors the systematic business and financial risks found in buyout companies. Retrospectively, this buyout index serves as a performance benchmark for buyout investments that the authors argue is preferable to ''vintage year'' comparisons. Prospectively, the buyout index methodology can be used to determine return, risk, and correlation forecasts for buyout investments that are consistent with public stock and fixed income forecasts.