Quant asset managers are increasingly replicating the performance of private equity in order to give investors access to the same beta for a fraction of the cost. This according to an article in Institutional Investor.

“The rise of passive investments in private equity is highlighting the exorbitant fees charged by private equity firms as well as the cons of holding illiquid and opaque portfolios,” the article explains–adding that in 2013, DSC Quantitative Group partnered with Refinitiv (formerly Thomson Reuters) to create private equity and venture capital benchmarks that track the “gross performance of each industry as well as investable indices that can be used to create a portfolio.” While critics argue that quants can’t replace the active work done by a private equity firm, the article notes that since its launch the DSC index has outperformed Cambridge Associates’ private equity index (which tracks self-reported returns of the private equity firms).

But DSC’s president, Jeffrey Knupp, doesn’t believe his firm can replicate the value creation of private equity managers. He said, “All the magic that the managers are doing at the portfolio companies is incorporated into the benchmark index,” adding, “Our process captures the creation of value in these companies…We’re not at odds with what the industry is doing.”

That said, Knupp argues that what the industry is doing is expensive. He explains, “Could we compress the historically high fees charged by private equity and still preserve the return streams? Yes, we can reduce fees by 70 to 80 percent, so those fees go to the investor rather than the manager.”