How does this new benchmark compare to existing blended public‑private indices in terms of methodology, tracking error, and suitability for hedging or long‑short strategies?

Methodology vs. existing blended indices – The Modern Market 100 is built on a “public‑first” universe (the 100 largest U.S. publicly‑traded companies by market‑cap) that is then augmented with private‑equity‑style weightings derived from PitchBook’s quarterly valuations of comparable private‑market companies. Unlike traditional blended benchmarks such as the Cambridge Associates Private Markets Index or MSCI’s Private‑Market‑Adjusted indices, which back‑fill private‑market exposure by allocating a fixed “private‑cap” slice or by using proxy‑company multiples, Morningstar applies a continuous, rule‑based overlay that re‑weights each constituent every quarter to reflect the latest private‑deal flow, exit multiples and fund‑size data. The index also retains a full‑free‑float, liquidity‑screened weighting for the public leg, meaning it can be replicated with ETFs or futures, while the private leg is represented by a basket of liquid listed proxies that track the underlying private valuations.

Tracking error – Because the public component is priced continuously and the private overlay is updated quarterly (instead of the semi‑annual or annual refreshes common to many blended indices), the Modern Market 100 delivers a lower overall tracking error for investable products—typically in the 30‑50 bps range for the composite versus 70‑120 bps seen in older hybrid benchmarks. The main source of residual TE remains the lag in private‑market pricing and the proxy‑bias inherent in using listed equivalents, but Morningstar’s “valuation‑gap” adjustment (smoothing private‑market NAV changes over the quarter) trims the volatility that otherwise spikes TE during deal‑flow shocks.

Suitability for hedging or long‑short strategies – The index’s transparent, quarterly‑rebalanced construction and liquid public core make it an effective hedging vehicle for managers who need a single reference point for both public and private exposure. Total‑return swaps or futures on the Modern Market 100 can be used to hedge a fund’s aggregate market beta while preserving the private‑equity tilt. For long‑short plays, the index’s clear decomposition (public vs. private overlay) lets traders short the public leg when public valuations are over‑inflated relative to the private‑market‑adjusted weighting, or go long the private overlay when private‑deal multiples are expanding. Compared with older blended indices that suffer from opaque proxy selections and higher TE, the Modern Market 100 offers tighter risk‑control and a more actionable signal for both passive benchmarking and active long‑short allocation.