Standard & Poor’s has launched a new index for global listed private equity managers, the S&P Listed Private Equity Index.

This new, investable index is the first to provide tradable exposure to a selection of the world’s largest and most liquid publicly listed companies that invest or operate in the private equity arena. It will help asset managers benchmark performance in the sector and create index-linked investment products that will enable investors to diversify risk and minimize potential downside at a time of stretched valuations.

The S&P Listed Private Equity Index is comprised of 25 leading private equity companies listed on exchanges across North America, Europe and the Asia-Pacific region that meet specific size, liquidity, and private equity- related criteria. Structures eligible for the index may take the form of publicly listed investment companies, business development companies, investment trusts, special purpose acquisition vehicles, buyout funds as well as private equity fund-of-funds. Approximately 70% of the index is comprised of buyout firms, with the remaining represented by venture capital firms.

To ensure companies are legitimate representatives of the private equity arena, index constituents must satisfy a combination of qualitative and quantitative criteria related to their exposure to the private equity business, the cyclical nature of their private equity investments as well as industry recognition as it relates to private equity activity. To maximize tradability, Standard & Poor’s assigns index weights at rebalancing using a unique optimization algorithm that maximizes index liquidity while meeting diversification requirements.

“Standard & Poor’s has been closely monitoring listed private equity companies for several years and believes there is now a sufficient pool of companies and a critical mass in market capitalization to form a representative and tradable index,” says David Blitzer, managing director and chairman of the Index Committee at Standard & Poor’s. “In 2003, there were only 16 pure private equity listed entities with a daily turnover of more than US$1 million and a market capitalization greater than US$250 million. As of 2007, these numbers have nearly doubled.”