KS-PME (Kaplan-Schoar PME)
Private Equity glossary · Private Equity Fundamentals
Definition
Kaplan-Schoar Public Market Equivalent — a multiple-based benchmark comparing a PE fund's cash flows to a hypothetical investment of the same cash flows in a public index: KS-PME = (sum_t D_t / I_t)/(sum_t C_t / I_t), where D_t is the distribution at time t, C_t is the contribution, and I_t is the index level. A KS-PME of 1.0x means the fund returned exactly the same as the index on a cash-flow-matched basis; >1.0x indicates outperformance, <1.0x underperformance. The complementary money-weighted measure is Direct Alpha (Long-Nickels), which computes the IRR spread between the fund and the shadow public-index portfolio.
KS-PME (Kaplan-Schoar PME) in plain English
KS-PME is a fairness test that answers one honest question: 'Would I have done better just dumping this same money into the regular stock market at the same times?' It takes every dollar the fund handed back to you and every dollar you put in, and compares them against what the stock market did on those exact dates. A score of 1.0 means the fund did precisely as well as the stock market would have; above 1.0 means it beat the market and earned its high fees, while below 1.0 means you'd have been better off in a plain index fund. It's the ultimate 'was this fancy investment actually worth it?' scorecard, judged against the easy alternative anyone could have taken.
Also called: Kaplan-Schoar PME
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