NEED TO MEET: Michael Elio, Managing Director, Industry Affairs, ILPA

With the rollout of its own private equity benchmark, Institutional Limited Partners Association is seeking to give its members a measurement system that is “institutionally relevant,” said Michael Elio, the association’s managing director of industry affairs.

There is no shortage of competing benchmarks in the marketplace, Elio acknowledged, but the ILPA Private Markets Benchmark, which the group announced formally at the end of March, focuses on a collection of funds that its members actually own.

When the organization launched the effort two years ago, a group of 111 of its institutional investor members provided their own lineups of fund commitments. When the ILPA then retained the noted investment advisor Cambridge Associates to handle the number crunching, they found that out of the members’ 5,000 funds and Cambridge Associates’s own 4,000-fund database, the overlap was fewer than 2,000 funds, said Elio, who joined the association last August from the consultant LP Capital Advisors to manage this effort.

The result was a proprietary index of more than 1,800 institutional funds, owned by the group’s own members, against which individual investors could measure their personal performance. For the record, the 10-year return for U.S. private equity was 13.55 percent, as of Sept. 30, 2012, the ILPA reported, while international funds (excluding U.S. buyout and venture capital funds) returned 13.95 percent over the period.

“Effectively it’s a subset of the Cambridge benchmark, but it’s an institutional subset,” Elio said. “Now it’s a relevant benchmark that our members can use to benchmark their own portfolios.”

They also can cut through the data in different ways, essentially using the Cambridge Associates toolkit to focus on fund geography (such as North America, Europe, other parts of the world), strategy (buyout, venture, distress), vintage year and other such factors, he said. “It’s for their use in analyzing their relationships. It’s that simple.”

The group also plans to expand the toolkit. For instance, Cambridge Associates already is developing a public market equivalent benchmark, which the ILPA will add to its own, so that investors can compare their private funds against publicly traded portfolios using the same calculation methodology, IRR rather than time-weighted returns, he said.

Since the association announced the availability of the benchmark, more of its members have expressed interest in joining in, and fund sponsors also have expressed interest in gaining access to the benchmark as well, Elio said. The ILPA has not made its data available to GPs, but might do so in the future, he said. GPs naturally want to know where they stand, and to make more effective presentations to prospective investors, he said. “It allows them to benchmark themselves in a way that members want them benchmarked.”

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