Index provider MSCI has launched a global benchmark incorporating both public and private equities, as investors increasingly look to private markets to boost returns and diversify their portfolios.
The MSCI All Country Public + Private Equity index will allocate a 15 per cent weighting to private equity. It combines MSCI’s All Country World Investable Equity index, which contains 8,300 listed companies — 99 per cent of developed and emerging markets listed stocks — with a newly launched All Country Private Equity index. The latter tracks the valuations of 10,000 private equity funds globally.
The launches follow rapid growth in the private equity sector in recent years, with assets under management more than doubling to $4.7tn since 2018, according to consultancy Bain, despite concerns among some commentators over valuations being paid.
As private asset investments become increasingly widespread, MSCI expects more demand for a total equity benchmark.
“I would say that the lines around public and private equity are blurring,” said Luke Flemmer, MSCI’s head of private assets.
“Institutional investors increasingly view equity as a unified asset class encompassing both publicly listed and privately held companies,” MSCI said in a report about the index’s methodology.
The index group has shifted towards the measurement of private asset valuations and performance in recent years.
In August 2023, it completed the purchase of US private asset data analytics company Burgiss, paying $697mn for the remaining two-thirds it did not already own. BlackRock acquired Preqin, a UK private markets data group, for £2.55bn in cash in March this year.
In a sign of the potential for private asset investments to grow, wealthy investors hold roughly 50 per cent of global capital but represent just 16 per cent of assets under management in alternative investment funds, according to Bain.
However, despite a broad trend of investors shifting into private assets, institutional fundraising for new private equity funds has stalled of late. This has encouraged the creation of evergreen funds, which have no fixed end date and which are often marketed to wealth managers and their rich clients.
Not everyone is convinced of the need for a combined public and private equity benchmark.
“Clients for whom we manage public-private portfolios usually have a total return objective and/or a volatility threshold in mind, rather than a ‘beat the index’ approach,” said Maya Bhandari, Emea multi-asset chief investment officer at US asset manager Neuberger Berman.
Another issue is that the wide range of returns over the past decade among private equity managers is a reason not to use a combined index that averages out performance, added Bhandari. This dispersion is much less of an issue for portfolio managers reliant on benchmarks and investing in global equities.
The new combined benchmark would be calculated daily based on the daily performance of each component index and would be rebalanced quarterly, said MSCI.
“[This new benchmark] extends our private assets toolkit [to give] investors a simpler way to access, benchmark and allocate to private capital,” said Flemmer.
