STANDARD & POOR’S, the company behind the influential credit-rating service and the S&P 500 US stock market index, is preparing to launch a private equity fund index in an effort to increase transparency in a highly secretive industry.

The index is the first of its kind and came to light as another high-profile industry adviser prepared to announce the world’s first private equity fund rating system — a further sign that investors are demanding more information on venture capitalists.

S&P will launch its first private equity fund index early next year, which will start at 100 points and track changes in the value of assets held by the large US leveraged buyout funds.

There will be a separate index for each year and funds are allocated an index based on the year they started to invest. It typically takes about ten years for a private equity firm to invest a fund, develop the businesses and then sell it.

S&P, which is working on the project with Hamilton Lane, the American investment advisory firm, plans to follow the US buyout index with separate indices for start-up and so-called mid-market buyout funds in the UK, Europe and Asia.

Erik Hirsh, the chief investment officer of Hamilton Lane, said: “As private equity continues to grow we need a reliable benchmark and we’ve had a lot of complaints from investors that what’s available isn’t good enough. We need more transparency.”

The indices would enable investors to compare their private equity investments with the general performance of the industry as well as the stock markets, Mr Hirsh added.

Many in the investment industry reacted angrily to the proposed indices and fund rating systems, which they argued would simplify and distort private equity performance, rather than illuminate it.

Oliver Tant, the global head of financial advisory services at KPMG, the consultancy, said: “You cannot apply the same approach to private equity fund valuations as to the public market because you cannot make regular trades, in a homogeneous asset, with a multitude of buyers.

“With private equity funds, it all comes down to how much one buyer is prepared to pay for a given company and you don’t know that until it is sold.”

These new initiatives are irresponsible and potentially damaging because they make people believe it is easier to measure private equity performance than it is, he added.

S&P’s indices will come after the launch later this month of a new private equity fund rating service by Cogent Partners, a Dallas bank that advises institutions on their venture capital investments.

Cogent plans to rank about 1,000 private equity funds across the world within the next two years, on a scale of one to five, with five being the best.

The bank has been trying out its ranking scheme over the past 18 months and is ready to launch the service formally, which will rank both new and existing funds, whether the private equity firm likes it or not.

The overall rating is calculated by combining the separate ratings for the fund’s historical performance and its projected performance, the bank says.