I am pleased to introduce first issue (number 0 in beta) of the [α + β-Cen] Reports whose objective is to provide “rational and quantitative” valuation indications and forecasting references to private markets’ fund investors. A dedicated page in this blog hosts the periodic issues of the report.
Pricing involves making forward looking assumptions. In the private market fund industry, this means estimating when and for how much portfolio companies will be purchased and sold.
The time-constrained and self-liquidating nature of funds provides some anchoring to the valuation process, so does the stream of periodic NAV information – as I wrote at least in one of my previous posts.
In this context, I also already suggested that indexing both to public markets and to private capital beta introduces an important element of “rationality” in the forecasting and valuation process.
The possibility of diversification implies that rational investors should not pay for expected alpha – or at least, if they do, they should be aware of the odds they take, in particular in cases, such as those of the private markets, when interim performance relies heavily on estimates regarding unrealized investments.
The [α + β-Cen] Report moves this “DaRC Room thinking” to its practical application level.
The report is named after the two brightest stars of the Constellation of the Centaurus, Alpha and Beta Centauri, that are known as the “Pointers” – the stars that navigators use to identify the Southern Cross and navigate south – but this is not the full story.
While “navigating” among investment alternatives, to know where alpha and beta are is even more important – in particular, when this can provide early signal about portfolio valuations “heading south”.
The DARC Room 