"Cambridge and Venture Economics are not indexes but benchmarks," Mr. Hirsch said. "The key difference will take us down to the special sauce we'll talk about when we are ready to unveil the workings."
Cambridge Associates has a U.S. Venture Capital index and a U.S. Private Equity index. Each includes the net return for the most recent quarter and for the rolling one-, three-, five- and 10-year periods. Venture Economics provides venture capital returns for fund type — for example, in venture capital category they have the quarter, one-, three-, five-, 10- and 20-year returns for early/seed stage venture capital funds, balanced venture capital and later stage venture capital.
The problem is that the two have been inconsistent, Mr. Hirsch said. For example, Venture Economics, which uses data from more than 1,750 US venture capital and private equity funds, lists 7.3% as the annualized return between the last quarter of 1984 and the last quarter of 2003. Cambridge Associates, which bases its data on more than 75% of the venture capital dollars raised since 1981, lists the same return as 16%.
Industry insiders say private equity and venture capital general partners also stop contributing data when their returns drop, skewing the returns.
With the benchmarks available, plan officials are often unable to define a complete and accurate universe of funds open for investment. Also, they must adjust fund returns for the low-performing early years and currency fluctuations, and are uncertain of portfolio company valuations, according to a report by McKinsey and Co., alternative investment consultant for the $132 billion California State Teachers' Retirement System, Sacramento,
Officials at S&P, New York, and Hamilton Lane, as well as some consultants, hope that firms with private equity and venture capital fund clients — or at least access to their data — might have better luck preventing private equity and venture capital fund managers from dropping off the charts. Hamilton Lane already has a qualitative and quantitative system in which it can pull up portfolios by client or fund manager and convert returns to time-weighted returns, Mr. Hirsch said. Hamilton Lane has a database of 550 funds and cash flow data stretching back to the early 1980s, he added.
Institutional investors have been using two types of benchmarks for private equity, said Stephen L. Nesbitt, chief executive officer of Cliffwater LLC, a Santa Monica, Calif., alternative investment consulting firm.
Most recently, investors have been using a measure of three percentage points above the Standard & Poor's 500 or Wilshire 5000 to evaluate the asset class and determine whether their portfolios are performing up to the standard.