The privateMetrics asset pricing model was developed to provide the best possible estimation of the market multiples required to calculate the fair value of private, unlisted equity investments. It is designed to reflect the principles of IFRS 13, which are also repeated in the IPEV valuation guidelines: to derive valuation inputs for individual private equity assets that genuinely reflect current market conditions and the risk exposure of each individual investment in the market for unlisted equity.

privateMetrics is used to estimate prices for hundreds of thousands of assets in the private equity universe. We show that, on average, at the market segment level, these predictions are very close to average exit prices (also at the segment level). It follows that infraMetrics can be used to produce market-level metrics of value, risk, and performance because in aggregate (on average), it predicts accurate market exit prices.

This is why the privateMetrics asset pricing model is used to create market indices, custom benchmarks and investment and valuation comparables.

This document discusses:

• Issues with traditional approaches in private equity valuation that rely on multiples of poor quality (e.g., public market multiples or reported data) or quantity (e.g., a stale handful of not-so-recent transactions), highlighting the potential consequences of using the wrong data.
• The privateMetrics asset pricing model as a reliable approach to estimating the marked-to-market prices of unlisted companies, using private market transactions to distinguish between the market price signal and asset-specific noise, and how this approach is genuinely aligned with the IFRS 13 standard and industry guidelines.
• The robustness of this approach, including how well average predicted values track observed transactions in individual market segments, and capture market risk in a convincing manner.
• An application of such a model to build robust valuation ‘Anchors’ for private equity investments.