{"concept_id":"ALTSS-PERF-020","slug":"ks-pme","canonical_name":"Kaplan–Schoar PME","acronym":"KS-PME","aliases":["Kaplan Schoar PME","KS PME","PME ratio"],"kind":"metric","authority":"academic","facets":["PRF"],"domains":["PERFORMANCE"],"display_title":"Kaplan–Schoar Public Market Equivalent (KS-PME)","search_aliases":["kaplan schoar pme","ks pme formula","how to calculate ks pme","ks-pme interpretation","pme ratio"],"one_sentence_definition":"The Kaplan–Schoar public market equivalent (KS-PME) is the ratio of a fund's distributions plus final NAV to its contributions, with each cash flow compounded to the valuation date at a public index's return; above 1.0, the fund beat the index.","plain_english":"KS-PME restates the fund's cash flows in index terms. Each contribution is grown at the index return to the end date, as if it had been invested in the index; so is each distribution, as if it had been reinvested. If the grown distributions plus what the fund is still worth exceed the grown contributions, the fund did better than the index on its own timing. It works like a total value to paid-in (TVPI) multiple in which every dollar is measured in index-adjusted terms.","parent_concepts":["public-market-equivalent"],"child_concepts":[],"related_concepts":["direct-alpha","long-nickels-pme","pme-plus","modified-pme","tvpi","benchmark","beta"],"comparison_concepts":[],"not_the_same_as":[{"slug":"direct-alpha","distinction":"Direct alpha is the annualised rate implied by the same index-compounded flows; KS-PME is the cumulative ratio. KS-PME > 1 if and only if direct alpha > 0."},{"slug":"long-nickels-pme","distinction":"LN-PME builds a hypothetical index portfolio and compares its IRR with the fund's IRR; KS-PME is a ratio and has no negative-NAV problem."},{"slug":"tvpi","distinction":"TVPI is the nominal multiple; KS-PME is the same idea after adjusting every flow for the index return."}],"formula_ids":["F-PERF-020-ks-pme-future-value-form"],"worked_examples":[{"title":"Illustrative fund that beat the index ($ millions)","paragraphs":["The fund draws 100 at period 0 and 50 at period 1, pays out 20, 60 and 70 in periods 2, 3 and 4, and reports NAV of 80 at the end of period 5. Over the same annual dates a total-return index reads 100, 110, 105, 120, 130 and 140, a 7.0% annual rise; the fund's own IRR is 12.9% and its TVPI 1.53x. Compounded to period 5, contributions are worth 203.6 and distributions 172.1; adding NAV of 80 gives 252.1. KS-PME = **1.24**. The same flows give a direct alpha of +6.3% a year."],"calc":{"fn":"ks_pme","inputs":{"contributions":[100,50,0,0,0,0],"distributions":[0,0,20,60,70,0],"nav_final":80,"index":[100,110,105,120,130,140]},"expected":{"ks_pme":1.2378},"tol":0.0005}},{"title":"The same fund against a stronger index","paragraphs":["Against an index that rises 100, 118, 130, 152, 170, 195 (14.3% a year), the same fund's KS-PME is **0.96**, and its direct alpha on those flows is −1.1% a year. The fund's IRR of 12.9% did not change; only the comparison did."],"calc":{"fn":"ks_pme","inputs":{"contributions":[100,50,0,0,0,0],"distributions":[0,0,20,60,70,0],"nav_final":80,"index":[100,118,130,152,170,195]},"expected":{"ks_pme":0.9627},"tol":0.0005}}],"sections":[{"heading":"KS-PME and direct alpha","paragraphs":["For the same cash flows and the same index, **KS-PME is above 1 exactly when direct alpha is positive**. Direct alpha is the rate that sets the net present value of the index-compounded flows to zero; at a rate of zero, that net present value is the KS-PME numerator minus its denominator. When the flows have the usual pattern of contributions followed by distributions, the net present value falls as the rate rises, so the root is positive if and only if KS-PME exceeds 1. KS-PME measures the size of the outperformance over the whole life; [direct alpha](/glossary/direct-alpha) converts it into an annual rate."]},{"heading":"Reading a KS-PME","paragraphs":["A KS-PME of 1.24 means the fund delivered 24% more value than the index would have on the same flows, over the fund's whole life to date. It is not an annual figure, so its magnitude grows with duration: a fund that beats the index by the same annual margin for twelve years shows a larger KS-PME than one that does so for five. For an unrealised fund the NAV term can dominate the numerator, so early KS-PMEs carry the same valuation risk as [TVPI](/glossary/tvpi)."]},{"heading":"What the index assumes","paragraphs":["KS-PME uses the index as the investor's alternative and makes no separate adjustment for the fund's market risk. Sorensen and Jagannathan (2015) show that it is equivalent to valuing the fund's cash flows with Rubinstein's dynamic capital asset pricing model (CAPM) when the index approximates the investor's overall wealth portfolio; under that model no beta estimate is needed and adding leverage does not raise a fund's expected KS-PME. In practice LPs often use narrower indices (small-cap, sector, regional), and then size, sector and style differences between fund and index show up in the ratio. Reporting several plausible indices is more informative than one. See [public market equivalent](/glossary/public-market-equivalent) for the full family and index selection."]},{"heading":"How LPs use it","paragraphs":["KS-PME became the standard public market equivalent ratio in academic work. It needs only the fund's cash flows, its latest NAV and an index series. LPs use it in manager due diligence, to compare a [vintage year](/glossary/vintage-year) cohort with listed markets, and to evaluate a whole private-equity programme on pooled cash flows."]}],"classification_rules":[],"calculation_rules":[],"common_mistakes":["Reading KS-PME as an annual excess return.","Using a price index instead of a total-return index.","Comparing KS-PMEs of funds with very different lives as if they were annualised.","Mixing gross and net fund cash flows; the original measure uses net flows to LPs."],"edge_cases":["With quarterly data, flows are aligned to the index level of the same date; if only quarter-end index levels are available, mid-quarter flows must be assigned to a quarter-end by a stated rule.","A fund with a very large final NAV relative to distributions has a KS-PME driven by one valuation.","Flows in a different currency from the index must be converted at each flow date before compounding."],"external_standard_mappings":[],"source_ids":["SRC-ACAD-GREDIL-GRIFFITHS-STUCKE-2023","SRC-ACAD-KAPLAN-SCHOAR-2005","SRC-ACAD-SORENSEN-JAGANNATHAN-2015","SRC-CFA-RF-LJUNGQVIST-2024"],"citations":[{"source_id":"SRC-ACAD-KAPLAN-SCHOAR-2005","pinpoint":"Vol. 60(4), pp. 1791–1823","supports":"Origin of the KS-PME ratio","source":{"source_id":"SRC-ACAD-KAPLAN-SCHOAR-2005","title":"Private Equity Performance: Returns, Persistence, and Capital Flows","authors":"Steven N. Kaplan; Antoinette Schoar","publisher":"The Journal of Finance","document_type":"paper","url":"https://doi.org/10.1111/j.1540-6261.2005.00780.x","doi":"10.1111/j.1540-6261.2005.00780.x","year":2005,"publication_date":"Vol. 60(4), pp. 1791-1823, August 2005","jurisdiction":"intl","status":"Published (journal paywalled; NBER w9807 working paper)","last_verified":"2026-10-01"}},{"source_id":"SRC-ACAD-SORENSEN-JAGANNATHAN-2015","pinpoint":"Vol. 71(4), pp. 43–50","supports":"KS-PME equivalent to valuation with Rubinstein's dynamic CAPM; index should approximate investor's wealth portfolio; leverage does not raise PME","source":{"source_id":"SRC-ACAD-SORENSEN-JAGANNATHAN-2015","title":"The Public Market Equivalent and Private Equity Performance","authors":"Morten Sorensen; Ravi Jagannathan","publisher":"Financial Analysts Journal","document_type":"paper","url":"https://doi.org/10.2469/faj.v71.n4.4","doi":"10.2469/faj.v71.n4.4","year":2015,"publication_date":"Vol. 71(4), pp. 43-50","jurisdiction":"intl","status":"Published (paywalled)","last_verified":"2026-10-01"}},{"source_id":"SRC-ACAD-GREDIL-GRIFFITHS-STUCKE-2023","pinpoint":"SSRN working paper dated 2014-02-28: section II.B (KS-PME, future- and present-value forms) and III.C (direct alpha zero when KS-PME equals one)","supports":"KS-PME as the TVPI of index-compounded flows; FV and PV forms identical; direct alpha is the annualised counterpart","source":{"source_id":"SRC-ACAD-GREDIL-GRIFFITHS-STUCKE-2023","title":"Benchmarking Private Equity: The Direct Alpha Method","authors":"Oleg R. Gredil; Barry Griffiths; Ruediger Stucke","publisher":"Journal of Corporate Finance","document_type":"paper","url":"https://doi.org/10.1016/j.jcorpfin.2023.102360","doi":"10.1016/j.jcorpfin.2023.102360","year":2023,"publication_date":"Vol. 81, 102360, August 2023; SSRN working paper 2014 (doi:10.2139/ssrn.2403521)","jurisdiction":"intl","status":"Published (paywalled)","last_verified":"2026-10-01"}},{"source_id":"SRC-CFA-RF-LJUNGQVIST-2024","pinpoint":"PME section","supports":"KS-PME as discounted distributions over discounted drawdowns; PME traced to Long and Nickels","source":{"source_id":"SRC-CFA-RF-LJUNGQVIST-2024","title":"The Economics of Private Equity: A Critical Review","authors":"Alexander Ljungqvist","publisher":"CFA Institute Research Foundation","document_type":"paper","url":"https://rpc.cfainstitute.org/sites/default/files/-/media/documents/article/rf-brief/economics-of-private-equity.pdf","year":2024,"publication_date":"Literature review, 2024","jurisdiction":"intl","status":"Published","last_verified":"2026-10-01"}}],"faq":[{"q":"What does a KS-PME of 1.0 mean?","a":"The fund's cash flows produced exactly what the same flows invested in the index would have produced, measured to the valuation date."}],"seo":{},"first_published":null,"last_reviewed":"2026-10-01","last_modified":"2026-10-01","content_version":"2.0.0","url":"https://altss.com/glossary/ks-pme","json_url":"https://altss.com/reference/concepts/ks-pme.json","title":"Kaplan–Schoar Public Market Equivalent (KS-PME)","formulas":[{"formula_id":"F-PERF-020-ks-pme-future-value-form","concept_id":"ALTSS-PERF-020","label":"KS-PME (future-value form)","plain":"KS-PME = (sum of D_t × I_T / I_t + NAV_T) / (sum of C_t × I_T / I_t)","latex":"\\mathrm{KS}\\text{-}\\mathrm{PME}=\\frac{\\sum_{t} D_t\\,\\frac{I_T}{I_t}+\\mathrm{NAV}_T}{\\sum_{t} C_t\\,\\frac{I_T}{I_t}}=\\frac{\\sum_{t} D_t/I_t+\\mathrm{NAV}_T/I_T}{\\sum_{t} C_t/I_t}","variables":[{"symbol":"C_t","meaning":"contribution on date t (positive amount)"},{"symbol":"D_t","meaning":"distribution on date t (positive amount)"},{"symbol":"I_t","meaning":"total-return index level on date t"},{"symbol":"I_T","meaning":"index level on the valuation date T"},{"symbol":"NAV_T","meaning":"fund NAV on the valuation date (zero for a fully realised fund)"}],"convention_note":"The future-value and present-value forms are identical: dividing numerator and denominator by I_T gives the version that discounts each flow by the index. Kaplan and Schoar (2005) introduced the measure for net-of-fee fund cash flows against the S&P 500; practitioners apply it to any total-return index.","implementation":"ks_pme"}],"sources":[{"source_id":"SRC-ACAD-GREDIL-GRIFFITHS-STUCKE-2023","title":"Benchmarking Private Equity: The Direct Alpha Method","authors":"Oleg R. Gredil; Barry Griffiths; Ruediger Stucke","publisher":"Journal of Corporate Finance","document_type":"paper","url":"https://doi.org/10.1016/j.jcorpfin.2023.102360","doi":"10.1016/j.jcorpfin.2023.102360","year":2023,"publication_date":"Vol. 81, 102360, August 2023; SSRN working paper 2014 (doi:10.2139/ssrn.2403521)","jurisdiction":"intl","status":"Published (paywalled)","last_verified":"2026-10-01"},{"source_id":"SRC-ACAD-KAPLAN-SCHOAR-2005","title":"Private Equity Performance: Returns, Persistence, and Capital Flows","authors":"Steven N. Kaplan; Antoinette Schoar","publisher":"The Journal of Finance","document_type":"paper","url":"https://doi.org/10.1111/j.1540-6261.2005.00780.x","doi":"10.1111/j.1540-6261.2005.00780.x","year":2005,"publication_date":"Vol. 60(4), pp. 1791-1823, August 2005","jurisdiction":"intl","status":"Published (journal paywalled; NBER w9807 working paper)","last_verified":"2026-10-01"},{"source_id":"SRC-ACAD-SORENSEN-JAGANNATHAN-2015","title":"The Public Market Equivalent and Private Equity Performance","authors":"Morten Sorensen; Ravi Jagannathan","publisher":"Financial Analysts Journal","document_type":"paper","url":"https://doi.org/10.2469/faj.v71.n4.4","doi":"10.2469/faj.v71.n4.4","year":2015,"publication_date":"Vol. 71(4), pp. 43-50","jurisdiction":"intl","status":"Published (paywalled)","last_verified":"2026-10-01"},{"source_id":"SRC-CFA-RF-LJUNGQVIST-2024","title":"The Economics of Private Equity: A Critical Review","authors":"Alexander Ljungqvist","publisher":"CFA Institute Research Foundation","document_type":"paper","url":"https://rpc.cfainstitute.org/sites/default/files/-/media/documents/article/rf-brief/economics-of-private-equity.pdf","year":2024,"publication_date":"Literature review, 2024","jurisdiction":"intl","status":"Published","last_verified":"2026-10-01"}]}