Public Market Equivalent (PME)

The Public Market Equivalent (PME) is a performance measure that compares the return of a private equity fund with what an equivalent investment in listed markets would have delivered. The idea is to simulate investing the same flows, on the same dates, in a benchmark stock index, then to relate the resulting value to that actually produced by the fund.

‍

This approach addresses a limit of the IRR – Internal Rate of Return and the MOIC – Multiple of Invested Capital, which measure absolute performance without saying whether it beats a liquid alternative. A PME above 1 indicates the fund outperformed the index, a PME below 1 that a listed investment would have been preferable, for an identical flow profile. Several calculation variants coexist, depending on how flows and residual value are treated.

‍

For example, a fund shows a multiple of 1.8 times money. Invested on the same dates in a listed index, the same flows would have returned the equivalent of 1.6 times: the Public Market Equivalent then works out at around 1.13, that is 13% of outperformance relative to the market.

‍

The PME has become a standard analysis for institutional investors seeking to assess the true premium of the unlisted space. It complements, without replacing, the classic measures of a fund's performance, adding the dimension of comparison with the market that they lack.