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Public Market Equivalent (PME) Calculator

Private Equity Benchmarking Tool

Compare PE returns against a public market index using the Kaplan-Schoar methodology

Calculator Inputs

$
$
index
index
years

Quick Reference

PME Formula (Kaplan-Schoar):

PME = Total Value / FV of Capital in Index

Where:

FV of Capital = Capital x (Index Exit / Index Entry)

Interpretation:

  • PME > 1.0 PE outperformed the index
  • PME < 1.0 Index outperformed PE
  • PME = 1.0 Matched performance
Ryan O'Connell, CFA, FRM
Ryan O'Connell, CFA, FRM Creator of the PME Calculator

Results

Public Market Equivalent (PME)
1.64x
PE Outperformed
Public Index Return (CAGR) 8.8%
PE Deal Return (CAGR) 23.1%
CAGR Spread (Excess Return) +14.4%
FV of Capital in Index $1,400,000

Formula Breakdown

Model Assumptions

  • Simplified 2-period Kaplan-Schoar PME: Single capital call at entry, single terminal value at exit.
  • Full multi-period PME requires time-series cash flows: Multiple contributions and distributions over time are out of scope for this calculator.
  • Total Value = Distributions + NAV: Enter the combined figure as a single input.
  • Total-return index assumed: Use an index that includes reinvested dividends for accurate comparison.
  • Fees, taxes, and currency effects not modeled separately: Results reflect the cash flows you enter.
  • For educational purposes only. Not financial advice.

When to Use This Calculator

Use PME Calculator

When benchmarking PE returns against a public index. Answers: "Did my PE investment beat the market?"

Use MOIC Calculator

When you only need the total value multiple (e.g., 2.3x) without benchmark comparison.

Use IRR Calculator

When you have multiple cash flows over time and need an annualized return rate.

Frequently Asked Questions

The Public Market Equivalent (PME) is a benchmarking metric that compares private equity returns to public market returns. It answers the question: "Would I have been better off investing in a public index instead of this PE fund?" A PME greater than 1.0 means the PE investment outperformed the public market benchmark.

PME is calculated by comparing the total value received from a PE investment to what you would have earned by investing the same capital in a public index. The formula is: PME = Total Value / (Capital x Index Growth). The index growth factor adjusts your original investment for public market performance over the same period.

A PME greater than 1.0 means the private equity investment outperformed the public market benchmark. For example, a PME of 1.64x means the PE investment generated 64% more value than the equivalent public market investment. The higher the PME, the greater the outperformance.

The Kaplan-Schoar PME, introduced by Steven Kaplan and Antoinette Schoar in their 2005 Journal of Finance paper, is the industry-standard method for benchmarking PE returns. It discounts all PE cash flows at the public market return rate, creating a fair apples-to-apples comparison. This calculator implements a simplified 2-period version suitable for single deals or vintage years.

CAGR spread represents the difference between the PE investment's compound annual growth rate and the public index's CAGR over the same period. A positive spread indicates the PE investment grew faster annually than the benchmark. This is a simplified measure of excess return, not formal Direct Alpha which requires full cash flow analysis.

This calculator uses a simplified 2-period model with a single capital call and single terminal value. Full fund-level PME analysis requires time-weighted treatment of multiple capital calls and distributions over the fund's life. For comprehensive fund benchmarking, institutional investors use specialized software that handles the complete cash flow time series.

Disclaimer: This calculator is for educational purposes only and does not constitute financial advice. Private equity investments involve significant risks including illiquidity and potential loss of capital. PME calculations depend heavily on benchmark selection; results may vary with different indices. Consult with qualified financial professionals before making investment decisions.

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Course by Ryan O'Connell, CFA, FRM

Portfolio Analytics & Risk Management

Master portfolio analytics and risk management. Learn to benchmark private equity returns, calculate risk metrics, and build institutional-quality investment analysis frameworks.

  • PME, IRR, MOIC and PE performance metrics
  • Risk-adjusted return measures (Sharpe, Sortino, Treynor)
  • Portfolio optimization and asset allocation
  • Value at Risk (VaR) and stress testing
View Course

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