Q & A Database
The GIPS Standards Q&A database contains questions and answers (Q&As) on various searchable topics that provide additional interpretation on an issue. Q&As are considered to be authoritative guidance and must be followed in order to claim compliance with the GIPS standards.
Content from prior Q&As was included in the GIPS Standards Handbook as much as possible and many Q&As were archived. Change the Status drop-down filter to "Archived" to see the archived Q&As.
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ArchivedEffective: 1 January, 2006 - 31 December, 2019Categories: Private EquitySource: Interpretive Guidance for Private Equity
What is a proper benchmark?
Investors in private equity are generally looking to outperform comparable quoted indices. Examples of relevant benchmarks would be a small-capitalization index (covering the same countries as the fund) for funds investing in comparably sized companies or a quoted technology index for those investing in venture funds. The index chosen will need to be a total return index (e.g., including dividends reinvested). The preferred calculation methodology involves notionally investing/divesting the fund cash flows into/out of the appropriate index and using the index cash flows to calculate an IRR.
In addition, many private equity associations and some specialist performance measurement firms provide data on median-and top-quartile performance for different classes of private equity. These returns for the same vintage year can be useful benchmarks. Although benchmarks are quite individual, the best benchmark for the composite should reflect the overall composite strategy, not necessarily individual clients’ benchmark preferences.