Morningstar Indexes and PitchBook continue their collaboration to provide investors more access to expanding markets with a new index designed to capture the key characteristics of buyout investing using publicly listed equities.
Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment insights and index solutions, has introduced the Morningstar® PitchBook Buyout Replication Index™, representing a portfolio of public companies designed to exhibit a similar risk and return profile as companies targeted by buyout managers.
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Since the inception of the buyout strategy in the 1980s, private equity managers have consistently applied a core playbook: targeting underperforming companies that generate strong free cash flow. However, the industry has struggled with establishing a representative benchmark, as traditional equity indexes fail to capture its distinct approach to security selection, sector tilts, and use of leverage. Infrequent valuations of private equity portfolios further smooth volatility and obscure true risk.
The Morningstar Pitchbook Buyout Replication Index tracks publicly traded small- and mid-cap stocks that resemble companies in private equity buyout funds. It employs a systematic approach, combining top-down industry exposure aligned with the U.S. buyout market and bottom-up company selection using dynamic public market data to identify public businesses with established cash flows.
The index is underpinned by PitchBook’s data on buyout funds and transactions and uses machine learning for constituent selection.
Sanjay Arya – Head of Innovation, Morningstar Indexes:
"Our new index aims to replicate returns from private equity buyout funds with the transparency and liquidity of the public markets. It's a powerful combination of PitchBook's data and Morningstar Indexes' expertise, representing a unique slice of the market.”
Andrew Akers, CFA – Lead Quantitative Research Analyst, PitchBook:
"Private equity firms customarily attribute their performance to operational alpha, but our research found that for many private equity funds, leverage, valuation shifts, and sector selection are actually the primary performance drivers. The Morningstar PitchBook Buyout Replication Index was created to capture these factors systematically and provide a much-needed and realistic benchmark for the private equity industry. As the private markets continue to grow in prominence and accessibility, we’ll continue building a suite of tools to help our clients understand GP strategies and performance analytics."
Key features of the Morningstar PitchBook Buyout Replication Index include:
- Private equity-like returns with liquidity: Tracks public equities with characteristics favored by buyout funds, enabling investors to access private equity-like exposure without the high entry costs, capital commitments, or lock-up periods typical of traditional private equity strategies.
- Powered by AI-driven innovation: An advanced neural network identifies public companies with take-private characteristics such as strong free cash flows and stable margins.
- Captures the distinct features of buyout portfolios: Mirrors the sector and leverage profiles of private equity portfolios to deliver exposure that is truly comparable to private equity.
- Addresses return smoothing with greater transparency: Provides full visibility into constituents and daily marked-to-market updates to mitigate delays in private fund reporting and accurately reflect the true risk profile of the private equity asset class.
