Benchmark Construction and Performance Evaluation of Mezzanine Finance Funds

Abstract

One of the major difficulties in evaluating private equity investments is developing data and meaningful tools that are like those that are commonly used in creating metrics for today’s public stocks. Illiquidity and irregular distribution of cash flows initially create those difficulties. In this paper, we show how we can utilize the thoroughly analyzed public indexes and their performance data to create benchmarking platforms that attempt to mimic the investment strategies of mezzanine funds. While the replication is not perfect, we believe that our benchmark platform provides some early glimpses into analytics that should be further explored by anyone evaluating and investing in private equity with finite maturity horizons.

TOPICS: Private equity, performance measurement, portfolio construction, quantitative methods