Private equity benchmarks and portfolio optimization

•We analyze listed, transaction-based, and appraisal value based private equity indices.•We show that none of these three indices are appropriate for portfolio optimization.•We introduce a new benchmark index for buyouts and venture capital.•We show our benchmark enables superior quantitative portfolio optimization. Portfolio optimization using private equity is typically based on one of three indices: listed private equity, transaction-based private equity, or appraisal value-based private equity indices. However, we show that none of these indices is fully suitable for portfolio optimization. We introduce here a new benchmark index for venture capital and buyouts, which is updated monthly, adjusted for autocorrelation (de-smoothing), and available contemporaneously. We illustrate how our benchmark enables superior quantitative portfolio optimization.