Private market allocations have moved from the fringes of institutional portfolios to their core, yet many performance measurement frameworks still treat them as an afterthought, according to new analysis from Ortec Finance.
As private markets take up a larger share of institutional portfolios, Ortec Finance argues they can no longer sit outside mainstream performance processes. Investment teams are making increasingly consequential decisions in assets that are inherently harder to value, benchmark and explain, and Ortec Finance says this makes robust measurement and attribution more critical than ever, with the real challenge shifting from simply tracking performance to understanding whether investment decisions are actually creating value.
One issue Ortec Finance highlights is the timing gap between when decisions are made and when private market valuations become available, often weeks or months later. This lag can create a disconnect between the estimates used for fund-level decisions such as currency hedging or rebalancing, and the final, effective-dated valuations used to judge those decisions afterwards. Ortec Finance suggests performance solutions need to measure this valuation timing effect directly, comparing outcomes based on best-available data against final data, and automatically incorporating backdated valuations as they arrive.
Illiquidity presents a further complication. Large transaction sizes, limited deal availability and the difficulty of exiting early can all widen the gap between strategic allocation targets and what is actually implemented. Ortec Finance notes that asset owners often turn to listed proxies to manage these exposure gaps, but doing so introduces its own performance and attribution effects. It calls for a framework that separates strategic allocation decisions from the practical constraints of implementation, so the impact of illiquidity and proxy exposures can be measured explicitly.
Understanding what actually drives private market returns is another challenge. Portfolio IRR offers a headline performance figure but, per Ortec Finance, does little to reveal whether individual decisions behind that number were effective. In private equity specifically, investment committees need visibility into which vintage years added value, which managers generated alpha, and how much of the return came from skill versus broader market conditions.
Benchmarking remains contentious too. Absolute benchmarks like CPI+X% are simple to communicate but often fail to reflect the conditions under which an investment was made, while Public Market Equivalent approaches have their own limitations. Ortec Finance argues effective measurement should support multiple benchmarking approaches and separate out the impact of vintage year, manager selection and the opportunity cost of allocating to private markets.
Ultimately, Ortec Finance positions its PEARL performance measurement and attribution solution as addressing these gaps directly, integrating private and public assets to calculate returns at any fund level and enabling multi-asset class attribution, so private market performance can be assessed alongside the rest of the total fund rather than in isolation.
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