The public market equivalent, or PME, compares a private fund with a stock index by pretending each of the fund's capital calls bought the index and each distribution sold it. If the fund beat that pretend portfolio, it beat the market with the same timing.
What the video says
In private markets, a fund's return means little until you compare it to the market. That's the public market equivalent. Take every cash flow of a private fund. Each time the fund calls money, pretend the same amount buys a stock index instead. Each time it pays out, pretend you sell that much of the index. Say the fund returned fifteen percent a year. The same cash flows in the index earned twelve. The fund beat the market by three points. So why do investors care? A high return in a rising market can still trail the index. It shows whether the fund earned its fees and its lock-up. Beat the index, or buy the index.
A simple example with round numbers, not advice. Terms vary by fund.
See an error?