What is a public market equivalent (PME)?

The first version, proposed in 1996, buys the index with each capital call and sells it with each distribution, then compares what is left with the fund’s value. Later versions calculate it differently but answer the same question, and all of them address limits of IRR and multiples. The result depends on which index is chosen.

Say a fund calls $100 and the index then rises 20%, so the same $100 in the index would be worth $120. If the fund’s stake is valued at $130, it beat the index; at $110, it lagged. Simple example. Terms vary by fund.

IRR and multiples alone cannot say whether a fund did better than an index fund would have, and PME is how investors answer that question.