PME
Public market equivalent is a family of methods comparing private-investment performance with a specified public-market benchmark using the timing of cash flows. Methods differ: a KS-PME ratio is not an annual percentage return and can be used at fund or investment level.
Also called Public market equivalent
Kaplan–Schoar PME calculation
Scale each contribution and distribution from its cash-flow date to one terminal date using the chosen total-return benchmark. Divide the sum of scaled distributions plus terminal NAV by the sum of scaled contributions. Above 1 indicates outperformance on this comparison; it is a ratio, not an annualized return.
PME in round numbers
Hypothetical two-year investment, in US$ units: contribute 100 at the start, when a chosen total-return index is 100. At the end of year two the index is 110; receive a distribution of 143 with no remaining net asset value (NAV) or other cash flows. The contribution scaled to the terminal date is 100 × 110 ÷ 100 = 110. KS-PME is (143 + 0) ÷ 110 = 1.30, not a 30% annual return.
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| Measure | Amount |
|---|---|
| Benchmark-scaled contributions | 110 |
| Benchmark-scaled distributions | 143 |
| Terminal NAV | 0 |
| KS-PME ratio | (143 + 0) ÷ 110 = 1.30 |
Source: CAIA: Alternative Investment Analyst Review, Q3 2018, PME methods.
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