TITLE:
Spread-Based Direct Alpha (SBDA) as a Performance Measure for PE Funds
AUTHORS:
Koichi Miyazaki, Kazuhiro Shimada
KEYWORDS:
PE Funds, Public Market Equivalent (PME), Direct Alpha, Spread Based Direct Alpha (SBDA), Performance Measurement
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.13 No.3,
August
25,
2023
ABSTRACT: In this study, we explore the Public Market Equivalent (PME) as a measure of Private Equity (PE) fund performance relative to the listed market. While various PME methods exist, the “direct alpha method” has been identified as the superior approach. However, concerns arise regarding its suitability from a financial theory perspective, given its derivation process and the questions surrounding its role as a performance measurement method for PE funds relative to listed markets. To address these issues, we propose a novel and more accurate measurement method, the Spread Based Direct Alpha (SBDA), along with a technique for deriving the alpha amount based on SBDA, enabling a more precise comparison of PE fund performance against traditional assets.