PitchBook, the premier data provider for the private and public equity markets, today released a new research framework, PitchBook’s PE Barometer, which is a multi-factor linear regression assessing which economic and public market indicators have the greatest influence on aggregate PE returns. This analysis provides evidence that most of the historical variation in aggregate PE returns can be explained by macro, credit, and equity factors, particularly in times of high volatility. These research findings have important implications for institutional investors constructing multi-asset portfolios and managing risk. The release of the PE Barometer is part of PitchBook Institutional Research Group’s strategy to develop frameworks, tools and models that empower institutional investors to refine allocation strategies and measure performance in private markets.
PitchBook’s PE Barometer can be found here. Analysis will be updated monthly on PitchBook News.
“Macroeconomic factors like, economic growth, interest rates, and inflation, all have an impact on asset classes, but in different ways. Understanding how PE returns are influenced by these macroeconomic factors provides insight into the risks associated with alternative assets and the drivers of current period returns,” said Andrew Akers, CFA, Senior Data Analyst at PitchBook. “On an ongoing basis, private market investors and asset allocators can use PitchBook’s PE Barometer to track key economic and market indicators and objectively relate them to PE returns.”
PitchBook’s PE Barometer is a multi-factor linear regression that applies a factor-based framework to aggregate PE returns. The Barometer takes the current value of 16 economic and market factors that are critical to explaining PE returns, and produces an estimate of the standardized quarterly PE return. According to the analysis, PE has significant exposure to the broader market, including macro, credit, and equity factors that are common across most asset classes. In particular, broader macro and market factors account for nearly all the variation in PE returns during times of high volatility. The strong correlation between these factors and PE returns enables asset allocators and investors to estimate performance well in advance of quarterly reporting cycles.
The release of this framework is part of PitchBook Institutional Research Group’s vision to develop its own intellectual property, built on top of PitchBook’s premier data. The team was established in 2015 to provide institutional-grade research on the private capital markets, a bourgeoning asset class at the time. To start, the team distributed quarterly in-depth analysis on its core asset classes and focus areas including, PE, VC and M&A, which quickly scaled to encompass thematic research on timely trends and emerging technologies. Today, the team is made up of more than 30 institutional researchers, covering 12 distinct sectors and over 60 industry segments such as, Mobility, IoT, AI/ML and Fintech. In addition to its research and client consultations, the PitchBook Institutional Research Group develops proprietary research products, including Manager Style Guides, Custom Benchmarks, Cash Flow Models, CCaR metric, and now, its PE Barometer. In 2021, the team expects to release additional performance measurement tools that provide more timely insights into private market activity.
PitchBook is a financial data and software company that provides transparency into the capital markets to help professionals discover and execute opportunities with confidence and efficiency. PitchBook collects and analyzes detailed data on the entire venture capital, private equity and M&A landscape—including public and private companies, investors, funds, investments, exits and people. The company’s data and analysis are available through the PitchBook Platform, industry news and in-depth reports. Founded in 2007, PitchBook has offices in Seattle, San Francisco, New York and London and serves more than 50,000 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as an independent subsidiary.