"Benchmarks serve a number of needs: 1. Assist with the ___ ___ ___ process. 2. ___ or ___ ___for the performance of an asset 3. Standard for managers to compare their performance against for ___ 4. Providing managers the right ___."

"Benchmarks serve a number of needs: 1. Assist with the **strategic asset allocation** process. 2. **Standard **or **point reference **for the performance of an asset 3. Standard for managers to compare their performance against for **marketing **4. Providing managers the right **incentives**."

"There are a number of steps involved with constructing and using a benchmark 1. ___ a PE asset and ___its ___ 2. Selecting an ___ ___for a direct PE investment, PE fund, or a fund of funds. 3. Comparing the PE asset's ___with that of the ___"

"There are a number of steps involved with constructing and using a benchmark 1. **Valuing **a PE asset and **measuring **its **performance **2. Selecting an **appropriate benchmark **for a direct PE investment, PE fund, or a fund of funds. 3. Comparing the PE asset's **performance **with that of the **benchmark**"

PE is essentially an ___ ___ ___, with assets valued by professional appraisers rather than by consensus reflected in market prices.

PE is essentially an **appraised asset class**, with assets valued by professional appraisers rather than by consensus reflected in market prices.

Due to lack of consensus on valuation and of third–party oversight, VC may suffer losses due to ___.

Due to lack of consensus on valuation and of third–party oversight, VC may suffer losses due to **overvaluation**.

Buyout investments have ___ valuation risk than VC funds.

Buyout investments have **less **valuation risk than VC funds.

Buyout valuations are based on **___ **___

Buyout valuations are based on **cash flow**

The ___ is the discount rate that makes the present values of cash inflows equal to the present values of the cash outflows.

The **IRR **is the discount rate that makes the present values of cash inflows equal to the present values of the cash outflows.

The ___–___ ___ IRR and the ___–___ IRR are considered by industry associations and the CFA institute to be the most appropriate measures of PE fund returns.

The **cash**–**weighted interim **IRR and the **since**–**inception **IRR are considered by industry associations and the CFA institute to be the most appropriate measures of PE fund returns.

The ___ to ___ ___ ___or ___ ___measures cumulative distributions to investors relative to the total capital drawn from investors.

The **distribution **to **paid in ratio **or **realized return **measures cumulative distributions to investors relative to the total capital drawn from investors.

The ___ ___to ___ ___ ___or ___ ___measures the total value of unrealized investments relative to the total capital drawn from investors in previous periods.

The **residual value **to **paid in ratio **or **unrealized return **measures the total value of unrealized investments relative to the total capital drawn from investors in previous periods.

The ___ ___to ___–___ratio or ___ ___measures cumulative distributions to investors plus the value of unrealized portfolio investments, relative to

The **total value** to **paid**–**in **ratio or **total return **measures cumulative distributions to investors plus the value of unrealized portfolio investments, relative to

Buyout funds typically generate positive returns ___ than venture capital funds.

Buyout funds typically generate positive returns **sooner **than venture capital funds.

The NAV of a PE fund ___ in the fund's early years and ___in later years.

The NAV of a PE fund **decreases **in the fund's early years and **increases **in later years.

There are two broad types of benchmarks:

1. ___-based benchmarks

2. ___-based benchmarks

There are two broad types of benchmarks:

1. **Asset**-based benchmarks

2. **Peergroup**-based benchmarks

PE is considered an ___ return class

PE is considered an **absolute **return class

A ___ ___index is comprised of share prices of publicly traded PE firms

A **listed PE **index is comprised of share prices of publicly traded PE firms

Listed PE indices have ___ risk-return characteristics than non-listed PE indices.

Listed PE indices have **different **risk-return characteristics than non-listed PE indices.

The ___ ___ ___ is an index return measure that uses market indices to reflect the opportunity cost of capital of a PE investment vis-a-vis investing in other instruments.

The **public market equivalent **is an index return measure that uses market indices to reflect the opportunity cost of capital of a PE investment vis-a-vis investing in other instruments.

The most intuitive form of benchmarking for PE funds is to compare a PE fund to a ___.

The most intuitive form of benchmarking for PE funds is to compare a PE fund to a **peergroup**.

A benchmark commonly used for PE is a ___-___ ___, which is a group of PE funds with similar traits.

A benchmark commonly used for PE is a **peer**-**group cohort**, which is a group of PE funds with similar traits.

PE fund databases suffer from a number of shortcomings:

1. PE investors ___ provide data

2. Databases do not ___ ___the ___

3. The quality of data is ___ and generally ___

4. Databases that include data from PE funds of funds may ___ ___data

5. Data related to ___and ___ ___are often excluded or incorrectly classified.

PE fund databases suffer from a number of shortcomings:

1. PE investors **voluntarily **provide data

2. Databases do not **fully represent **the **market**

3. The quality of data is **inconsistent **and generally **poor**

4. Databases that include data from PE funds of funds may **double count **data

5. Data related to **innovations **and **emerging markets **are often excluded or incorrectly classified.

Some traits of peergroups present challenges:

1. Peergroup ___ are not known

2. Peergroups are not ___

Some traits of peergroups present challenges:

1. Peergroup **populations **are not known

2. Peergroups are not **investible**

Publicly available databases are subject to biases, which reflect PE's lack of transparency:

1. ___ bias

2. ___pricing

3. ___ ___bias

4. ___bias

5. ___bias

Publicly available databases are subject to biases, which reflect PE's lack of transparency:

1. **Valuation **bias

2. **Stale **pricing

3. **Instant history **bias

4. **Selection **bias

5. **Survivorship **bias

___ ___ bias occurs when database providers add return data to their databases that correspond to a PE fund's incubation period.

**Instant history** bias occurs when database providers add return data to their databases that correspond to a PE fund's incubation period.

___ bias refers to a benchmark being constructed from a sample of data that differs from the universe of all PE funds

**Selection **bias refers to a benchmark being constructed from a sample of data that differs from the universe of all PE funds

Swensen argues that survivorship bias may be ___ prevalent in PE than public equity.

Swensen argues that survivorship bias may be **less **prevalent in PE than public equity.

Risk differences between PE funds and benchmarks can be controlled ___ and ___-___.

Risk differences between PE funds and benchmarks can be controlled **quantitatively **and **non**-**quantitatively**.

___-___ adjustments entail requiring a PE manager to invest only in assets comparable to a peergroup.

**Non**-**quantitative** adjustments entail requiring a PE manager to invest only in assets comparable to a peergroup.

Controlling for risk ___ entails requiring the manager's performance to meet ___ standards and adjusting the ex-post performance for risk.

Controlling for risk **quantitatively **entails requiring the manager's performance to meet **quantitative** standards and adjusting the ex-post performance for risk.

The Bailey criteria of a benchmark are:

1. U___

2. I___

3. M___

4. S___ in ___

5. A___

6. R___ of ___ ___ ___

7. O___

The Bailey criteria of a benchmark are:

**1. Unambiguous**

**2. Investable**

**3. Measurable**

**4. Specified in advance**

**5. Appropriate**

**6. Reflective of current investment opinion**

**7. Owned**