Private markets cannot be indexed on public equity terms. Indexing requires a benchmark that represents the opportunity set and an average worth owning, and private markets satisfy neither condition cleanly. Benchmarks are assembled from voluntary manager self-reports and appraisal-based marks, so they measure a reporting population rather than an asset class, and no investor can buy the index itself.
Private markets acquired index infrastructure at an unusual pace over the past eighteen months. MSCI published private capital benchmarks based on a universe updated through the first quarter of 2026, introduced an All Country Private Credit Index, and launched monthly evergreen fund indexes. Morningstar and PitchBook brought their own US evergreen fund index family to market in early 2026. Benchmark construction has become a competitive product category.
The instinct behind that build-out is familiar and, in public equity, well founded. If an asset class can be measured, it can be benchmarked; if it can be benchmarked, it can be allocated to systematically; and if the average is good enough, owning the average is the rational default. This post examines whether that chain holds when the asset class is private.
What conditions does indexing require to work?
Indexing depends on two properties that public equity happens to have. The index must reasonably represent the opportunity set, and the average of that opportunity set must be worth owning. Private markets satisfy neither criterion cleanly.
Private benchmarks are assembled from voluntary manager self-reports, supplemented by limited partner disclosures, much of which is driven by public-records requirements rather than choice. Preqin's own educational material identifies the resulting incentive asymmetry directly: a manager has reason to report a strong fund promptly and to delay or withhold reporting on a weak one. If managers pursuing a particular strategy systematically underreport, the benchmark for that strategy is skewed.¹ The CFA Institute's 2026 treatment of private equity benchmarking makes the structural point: survivorship bias, self-selection bias, and distortion from the composition of the reporting base are inherent features of the construction, and a benchmark reflects not only the market but also the lens through which the market is observed.²
Regarding the inputs themselves, the International Monetary Fund has identified stale and subjective valuations as a principal vulnerability in private credit, noting that managers retain considerable discretion over the marks applied to illiquid positions, which can smooth reported returns and suppress measured volatility.³ An index built from those marks inherits that property. It will report lower volatility than the underlying assets experienced, and the reduction is a measurement artifact rather than a portfolio benefit.
Can an investor actually buy a private markets index?
The second condition fails more fundamentally. An investor cannot purchase a private markets index. What is available is a manager's approximation, with its own fee layer, deployment schedule, and selection process operating inside the wrapper.
In public equity, the gap between an index and an index fund is a few basis points of tracking error, so the distinction can be ignored. In private markets, the gap between the benchmark and the investable proxy is where essentially the entire outcome is determined. Treating that gap as tracking error to be minimized misunderstands what it is.
A conceptual mismatch also remains that no amount of data improvement can resolve. Indexing works in public equity because the average is acceptable. The case for a private markets allocation rests on the distribution rather than the average — that is the argument used to justify the fee load, the illiquidity, and the governance burden. By construction, an index measures the average. Owning the average of an asset class whose thesis is dispersion is coherent only if that average, net of the access fees required to obtain it, still clears the public alternative. That is a defensible position, but it is different from the one used to sell the allocation.
What is driving the index build-out?
The build-out is not primarily a response to measurement demand from existing allocators. It is a precondition for distribution. A model portfolio requires a reference point. A fiduciary evaluating a defined contribution menu requires a comparison, and Department of Labor guidance has reinforced the expectation of meaningful benchmarks in fiduciary evaluation.² Private equity now represents roughly eight percent of the global investable equity market, up from one percent in 2000, and the number of listed US companies has fallen from approximately eight thousand in the mid-1990s to fewer than four thousand five hundred.⁴ An asset class of that size moving toward retirement capital requires benchmarks to be administered at all.
The consequence to anticipate is second-order. In public markets, the sequence ran from index-to-index funds to the index itself materially shaping the market it was built to measure. Index inclusion became a flow event. There is no structural reason to expect the sequence to halt at the first step here, and the constituency with the most influence over what these benchmarks include is the constituency that reports into them.
How should a benchmark be used in diligence?
The practical approach is to treat these benchmarks as evidence about a reporting population rather than as a measure of an asset class.
- What is the reporting base, who contributes to it, and which segments of the market are structurally absent from it?
- Are the returns gross or net, and at what point in fund life were the constituent marks struck relative to the comparison period?
- If the benchmark reports lower volatility than a leverage-and-size-matched public comparison, how much of that difference is attributable to valuation method rather than to asset behavior?
- What would be purchased to achieve the benchmark's return, and what does that instrument cost relative to the benchmark it approximates?
Is owning the average a defensible position in private markets?
The indexing philosophy is not wrong. It is conditional, with specific requirements: complete measurement, unbiased inclusion, and an average worth holding. Public equity meets all three, which is why indexing succeeded there and why that success was earned rather than accidental.
Private markets currently satisfy none of the three, and the infrastructure now being built measures the reported market rather than the market itself. That infrastructure is useful and a real improvement on what preceded it. It is not yet a basis for owning the average, and an allocator who treats a benchmark as though it were has adopted a philosophical conclusion without the conditions that make the philosophy work.
For informational purposes only. Not investment advice, and not an offer to sell or a solicitation of an offer to buy any security.