1.1 Country Selection

Country selection for the privateMetrics® Market Indices aims to balance data quality considerations and investability in private markets through the most common investment vehicles for accessing private companies including private equity and venture capital funds. For example, if a foreign investor finds it very complex to invest in a country with a high degree of protectionism and severe restrictions on Foreign Direct Investments, then such a country is less attractive to private equity capital, and thus is less likely to be representative of the broad performance of private markets.

To screen out countries by their attractiveness to private equity and venture capital investments, we begin with a ranking of countries in their attractiveness to private investors. The rankings compiled by researchers (Groh et al., 2023) at IESE Business School and updated every few years are used as a starting point. The rankings are compiled based on factors including economic activity, capital markets, taxation, investor protection, corporate governance, and labour environment that affect the relative risk/return attractiveness for PE/VC investors. 52 countries rank with an index score of 50 or above according to the tenth edition of the rankings, which are reproduced below.

Since private2000 and private3000 are designed to comprise 2,000 and 3,000 companies, respectively, the choice of the number of countries and their economic weights (weights discussed in 1.2 Country Weights) can lead to situations where a country with infinitesimally small weight owing to its GDP can become ineligible to add even one company. For example, the lowest weight in 2,000 that a country should have to include at least one company is 1/2000 or 0.05%. With such a consideration, we restrict the number of countries in the flagships to the top 30 in the rankings.

These weights will be reviewed periodically as new annual GDP data becomes available for the countries, giving a fair chance for growing economies to be part of the index. Likewise, the Groh et al. (2023) rankings are all expected to be revised biennially, and we expect to expand the countries covered when such events happen.

Note that both changes to countries covered and weights will be reflected in the annual reconstitution in June and will not affect past data. More on index maintenance, including the annual reconstitution, is provided in Index Maintenance section.

_{Groh, A., Liechtenstein, H., Lieser, K., & Biesinger, M. (2023). The Venture Capital & Private Equity Country Attractiveness Index. IESE Business School University of Navarra. https://blog.iese.edu/vcpeindex/}