Submitted by Diogo Rebelo (diogosvrebelo@gmail.com) on 2015-03-02T00:00:20Z No. of bitstreams: 1 Tese Final FGV- Diogo Rebelo.pdf: 1148199 bytes, checksum: 1934b936e71be2a5ff74d29fed77e94e (MD5) / Approved for entry into archive by Luana Rodrigues (luana.rodrigues@fgv.br) on 2015-03-02T12:12:08Z (GMT) No. of bitstreams: 1 Tese Final FGV- Diogo Rebelo.pdf: 1148199 bytes, checksum: 1934b936e71be2a5ff74d29fed77e94e (MD5) / Made available in DSpace on 2015-03-02T12:15:23Z (GMT). No. of bitstreams: 1 Tese Final FGV- Diogo Rebelo.pdf: 1148199 bytes, checksum: 1934b936e71be2a5ff74d29fed77e94e (MD5) Previous issue date: 2014-08-26 / This study presents an alternative investment projection model to estimate the future values of Private Equity (PE) investments. The performance of PE investments is assessed by analyzing the risk-return relationship relative to simulated Public Market (PM) investments that mimic the cash flow patterns of PE investments. The model allows for a quantified analysis of the underlying inputs that outline the PE performance and risks, and accounts for survivorship bias. These inputs include the fund manager’s decisions regarding the selection, leverage, size, duration and timing of investment and divestments. / Este estudo apresenta um modelo de projeção de investimentos alternativos para estimar os valores futuros de investimentos de Private Equity (PE). O desempenho dos investimentos de PE é avaliado pelo risco-retorno em relação a investimentos de Mercados Públicos simulados de forma a imitar os padrões de fluxo de caixa dos investimentos de PE. O modelo permite uma análise quantificada dos inputs que caraterizam o desempenho e riscos de investimentos de PE, e tem em consideração rácios de sobrevivência (survivorship bias) destes investimentos. Estes inputs incluem decisões dos gestores do fundo em relação à seleção, alavancagem, tamanho, duração e timings dos investimentos e desinvestimentos.

Private equity (PE) has consistently delivered robust financial returns relative to the public stock market, therefore attracting significant interest from institutional and private investors alike. Private equity performance is generally benchmarked against the public stock market with the help of the Public Market Equivalent (PME) framework. However, a common criticism is that very broad indices, not reflecting the characteristics of private equity investments, are generally used in this framework. This thesis explores the application of tailored indices in the PME framework, designed to more closely mirror the specific characteristics of PE investments, such as sector and geographical composition, and thus providing a more realistic picture of PE performance. The research adopts a quantitative approach and through comprehensive data collection of cash flows, valuations, composition and index data the authors construct two Excel models: one assessing the performance of the PE market and the other analyzing a Fund of Funds (FoF) actor's underlying funds. The findings indicate that using tailored indices generally reduces the outperformance of PE investments compared to the public market. Specifically, PE funds with vintages from 2004 to 2018 experience a 2% to 3.5% decrease in yearly excess return when benchmarked against a tailored index rather than the MSCI World index. A significant factor contributing to this trend is the PE market's concentration on high-performing sectors in America. These findings highlight the critical role of benchmark selection in assessing PE performance. Additionally, funds with a specific investment focus, known as specialist funds, are more accurately benchmarked against tailored indices that reflect their focus. Conversely, generalist funds can be effectively benchmarked against a broad index.