A Private Investment Benchmark

AIMR
Conference on Venture Capital Investing

A Private Investment Benchmark

by
Austin M. Long, III
MPA, CPA, JD

Craig J. Nickels, CFA


The University of Texas System

February 13, 1996 Proposed Private Investment Benchmark (continued)
EXECUTIVE SUMMARY

• A private investment benchmark should be:
• Unambiguous
• Investable
• Measurable
• Appropriate
• Reflective of current investment opinions
• Specified in advance
We believe that, for private investments, no existing benchmark encompasses all (or even most)
of these characteristics. We have therefore designed a custom benchmark that is as inclusive of
these characteristics as possible. See Section 1.0 on page 3 below.
• We recommend two courses of action, which we hope are complementary:
• Given the background cited in Section 2.0 on page 5, investors in the private
markets should use the S&P 500 index (or some other index of publicly traded
securities deemed more appropriate) as a benchmark, translating the index from a
time-weighted basis to a time-weighted dollar-weighted (i.e., IRR) basis using
either the total return method described in Section 3.0 on page 7 or the horizon
return method described in Section 4.0 on page 8.
In comparing managers within an asset class, investors in the private
markets can make use of the Rosetta stone mechanism of the total return
cross-index comparison outlined in Section 5.0 on page 9 or the horizon
return cross-index ...