REFINITIV INDICES PRIVATE EQUITY BUYOUT INDEX METHODOLOGY

Transcription

1 REFINITIV INDICES PRIVATE EQUITY BUYOUT INDEX METHODOLOGY 1

2 Table of Contents INTRODUCTION 3 TR Prvate Equty Buyout Index 3 INDEX COMPOSITION 3 Sector Portfolos 4 Sector Weghtng 5 Index Rebalance 5 Index Computaton 6 GOVERNANCE 6 Index Acton Commttee 6 ABOUT REFINITIV INDICES 7 Refntv Indces 7 CONTACT US 7 2

3 INTRODUCTION TR Prvate Equty Buyout Index The TR Prvate Equty Buyout Index ( TR PE Buyout Index ) s an ndex made up of ndependent portfolos ntended to track the return of the prvate equty unverse by replcatng movements n the TR Prvate Equty Buyout Research Index ( TR PE Buyout Research Index ). The TR PE Buyout Index seeks to replcate the return profle of the prvate equty buyout asset class by constructng a combnaton of sector portfolo returns. These sector portfolos are desgned to track the performance of prvate equty sector nvestments by holdng lqud exchange traded nstruments rather than nvestng drectly n prvate equty frms. The TR PE Buyout Index seeks to track the medum-term performance of the TR PE Buyout Research Index, but unlke the TR PE Buyout Research Index, returns to the TR PE Buyout Index are computed at the close of each tradng day, provdng mmedate nformaton about movements n the prvate equty unverse. They are also not subject to hstorcal revson whereas the TR PE Buyout Research Index s subject to revsons. As such the TR PE Buyout Index s an approprate benchmark for nvestable products seekng to track prvate equty returns. The TR PE Buyout Research Index s constructed from observed valuatons of prvate equty- owned frms at dscrete ponts n tme. These observed valuatons fuel a sophstcated econometrc methodology that estmates the value of each frm n every month, not just months n whch the frm value s observed. Aggregatng ths tme-seres of frm values, the TR PE Buyout Research Index constructs a value-weghted ndex of the returns to a theoretcal fully-dversfed portfolo of prvate equty- buyout transactons capturng a hgh percentage of all PE-buyout actvty. The nature of the valuaton events used n the TR PE Buyout Research Index s such that only a porton of the data becomes avalable shortly after each quarter end wth the remanng data comng n over tme. As a result, the TR PE Buyout Research Index returns are publshed on a quarterly bass, and are subject to revson for 8 quarters (See The TR Prvate Equty Buyout Research Index Methodology for more detals). INDEX COMPOSITION The TR PE Buyout Research Index tracks the performance of prvate equty-owned frms across a number of economc sectors. Each prvate equty-backed frm n the TR PE Buyout Research Index s mapped to a TR sector. These frms collectvely make up the prvate equty buyout unverse. The penultmate result of the TR PE Buyout Research Index computaton s a lst of the estmated values of each prvate equty portfolo frm n each month. The approach of the TR PE Buyout Index s to combne, wth approprate weghts, sector portfolo returns, each of whch seeks to mmc return characterstcs of the prvate equty frms n each economc sector n the prvate equty unverse and, jontly, to capture the rsk/reward characterstcs of prvate equty as an asset class. The sector portfolos hold lqud exchange traded nstruments. 3

4 Usng these frm weghts from the TR PE Buyout Research Index, we can compute the weght of each sector n the prvate equty unverse. These weghts are used n determnng the fnal weghts appled to the portfolos n order to create the fnal TR PE Buyout Index. It should be noted that the TR PE Buyout Research and TR PE Buyout Indces seek to match the returns of the prvate equty buyout (asset class) before fund-level management and ncentve fees. Annualzed Return January September 2013 TR PE Buyout Research Index: 16.91% TR PE Buyout Index: 16.55% SECTOR PORTFOLIOS The TR PE Buyout Index s computed as the weghted return of seven sector portfolos. Sectors 1. Consumer Non-Cyclcal 2. Consumer Cyclcal 3. Technology 4. Industrals 5. Healthcare 6. Fnancals 7. Energy/Utltes 4

5 These sector portfolos correspond to the same sectors mapped out n the TR PE Buyout Research Index: Sector Dstrbuton Across TR PE Buy Out Research Index - September 30, % 7% 18% Consumer Noncyclcal 18% Consumer Cyclcal 15% 15% Technology 16% 13% Industrals 19% Healthcare 13% 19% 16% Fnancals 12% Energy/Utltes 7% The sector portfolos each seek to replcate a sector of the prvate equty unverse, as well as unversal characterstcs of prvate equty-backed frms. They are constructed usng dscreton-free, propretary econometrc models and seek to mmc the rsks and return characterstcs of prvate equty portfolo frms assocated wth each economc sector. Each sector portfolo s rebalanced on the frst day of each month. The sector portfolos contan lqud securtes whch may nclude equtes, dervatves and ndces, among others. These sector portfolos, when weghted approprately, seek to mmc the behavor of the TR PE Buyout Research Index. Components of the sector portfolos are selected based on quanttatve econometrc models. Portfolo returns are computed and reported by an ndependent thrd party calculaton agent. The combned portfolo of the seven sector portfolos conform to the followng: All assets must be: o Publcly lsted o U.S. exchange traded No sngle equty may exceed 7% of the total combned portfolo 90% of securtes must be classfed n the same correspondng economc sector of the Research Index SECTOR WEIGHTING The TR PE Buyout Research Index s computed quarterly. Ths means that lve sector weghts are not mmedately avalable for use n weghtng the TR PE Buyout Index. Instead, the latest avalable sector weghts from the TR PE Buyout Research Index are used along wth an update accountng for relatve performance of each sector n the TR PE Buyout Index. INDEX REBALANCE Snce the TR PE Buyout Research Index and TR PE Buyout Index are weghted by the value of the prvate equty frms n those sectors, no explct rebalance s needed on a day- 5

6 to-day or month-to-month bass n months wthout an update to the TR PE Buyout Research Index. However, a new set of weghts s receved when the TR PE Buyout Research Index s updated/revsed once a quarter. The new weghts for the prvate equty sector portfolos and publshed on the last Frday of Aprl, July, October and January (One month after each quarter end). Therefore, a quarterly rebalance s computed usng the followng approach: Let the weghts of each sector as of the last publshed TR PE Buyout Research Index month be denoted by W t-j. Here denotes the sector, t the current date, S s the performance of the matchng sector portfolo, and j the number of months that have passed snce the last avalable TR PE Buyout Research Index. The current weghts can be computed usng: W t = 1+ S t-j,t * W t-j 7 k=1 k 1+ S t-j,t k * W t-j Thus, the requred portfolo weghts are the last known weghts of those sectors n the prvate equty ndustry, updated usng relatve performance of correspondng sectors. In months n whch the TR PE Buyout Research ndex s not updated, the relatve weghts of the sectors change wth relatve performance so that rebalancng s not necessary. The weght to each sector s equal to the weght of that sector n the prevous month tmes the performance of that sector, scaled so that weghts sum to unty. INDEX COMPUTATION Although the TR PE Buyout Index seeks to track the non-nvestable TR PE Buyout Research Index, ts sector portfolos are made up of exchange-traded assets. Therefore, the TR PE Buyout Index returns are computed n a smlar fashon to other weghted total- return ndces. The TR PE Buyout Index monthly return s computed: R t = R t * W t These 7 sectors nclude the 7 portfolos assocated wth TR sectors. Notce that R t n ths equaton denotes the return to sector portfolo n perod t and W t s the weght sector ndex receves n perod t (that s, the weght mplemented at tme t-1 and affectng the return untl tme t ). Once the returns are calculated, the TR PE Buyout Index levels are then computed: L t = L t-1 * (1 + R t ) The base value of the TR PE Buyout Index s 100 as of January 1,

7 GOVERNANCE Index Acton Commttee (IAC) The Index Acton Commttees (IAC) for the TR PE Buyout Index s composed of representaton from the Refntv Indces and ndependent outsde members of the fnancal communty (TBD). The man actvty of ths Index Acton Commttee s to ensure that the attrbutes the TR PE Buyout Index clams to possess are ndeed present. These revews take place a week before the quarterly rebalance results are publshed (3 rd Frday n Aprl, July, October and January). The Index Acton Commttee deals wth makng sure algorthm that calculates the ndex s accurate. The commttee wll also revew the results of the quarterly rebalance and reserves the rght to make any necessary changes. ABOUT REFINITIV INDICES Refntv Indces Refntv s the world s leadng source of ntellgent nformaton for busnesses and professonals. We combne ndustry expertse wth nnovatve technology to delver crtcal nformaton to leadng decson makers n the fnancal, legal, tax and accountng, scentfc, healthcare and meda markets, powered by the world s most trusted news organzaton. Refntv provdes trusted and nnovatve ndces and ndex-related servces to the nvestment communty. Our ndex busness leverages Refntv global footprnt and unparalleled depth and breadth of the fnancal markets to provde our clents wth: Beta-generatng Indces Alpha-creatng Indces Custom Index Servces Index Calculaton Servces Sector Classfcaton wth TRBC Whether you requre ndces for benchmarkng or for the development of nvestment vehcles, Refntv offers a range of ndex solutons to satsfy your requrements. Delvered va Refntv platforms and data feeds, Refntv Indces leverage the latest technologes for ease of use and convenent delvery. Refntv Indces are used by nvestors such as plan consultants, nvestment managers, mutual fund provders, ETF provders, fnancal advsors, nvestment banks, stock exchanges and the meda. Refntv does not provde fnancal advce to clents, whch allows for the provson of truly objectve market nformaton. Each ndex s constructed employng content sets wth the hghest data ntegrty. They are transparent and desgned to provde unbased and neutral measures of the markets. Our rgorous fnancal models, analytcs and classfcatons provde nsght needed to make better nvestment decsons. CONTACT US: For further nformaton, vst the Refntv Indces webste or Index_Queres@tr.com 7