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On the Historical Outperformance of Private Equity

An evaluation of private equity returns compared to their respective public market equivalents.

Key takeaways

01.

Alternative to traditional asset classes

Private equity, being one of the more mature and established components of the private markets universe, has seen phenomenal growth and is now considered less “alternative” and more “core” to an institutional investor’s overall portfolio [BII 2017, BII 2019].

02.

Offering consistent outperformance

Such outperformance is often attributed to a combination of operational improvements, active ownership, more direct corporate governance, better alignment of interests, longer investment horizons and financial leverage [Puche 2015].

03.

Across a variety of time periods and regions

This article studies the outperformance or alpha of private equity funds and finds material outperformance across the board. All results shown here are objective market data, and no assumptions or amendments were made to the data.

In the search for alpha, institutional investors have increased allocations to private equity in order to meet return targets. Some practitioners have doubted outperformance related to private equity after accounting for leverage and size biases in the representative benchmarks. This paper evaluated private equity against benchmarks representative of the asset class and demonstrates material outperformance in various performance metrics across different time periods and public equity indices.

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