Private equity (PE) investments have historically outperformed public stock markets over time. Here are several authoritative sources/studies supporting this proposition:
- Bain & Company’s Analysis: Over the past 30 years, U.S. buyouts have generated average net returns of 13.1%, compared to 8.1% for public market equivalents, indicating outperformance by private equity, but Bain notes that the spread (for buyout funds) has narrowed in recent history. Bain
- KKR’s Research: Data as of March 31, 2024, shows that private equity outperformed public market returns, with PE investments yielding higher returns compared to the S&P 500 index. KKR
- Qualitas Funds Report: Historically, private equity has outperformed public markets, with subsequent three-to-five-year periods after public market outperformance seeing PE outperform by an average of 850 to 1,050 basis points. Qualitas
- Academic Study by Kaplan and Schoar (2005): This study concluded that private equity overall has outperformed the public markets over time, but various sectors (like venture capital, buyout funds, etc.) have varied over time. SSRN
- The Economics Review: A study highlighted that private equity-backed companies responded better to financial distress, suggesting that PE returns couldn’t be easily replicated by public markets. This study also points out that some of the data supporting this thesis has been questioned and criticized. The Economics Review
These sources provide a robust foundation for asserting that private equity investments have the potential to outperform public stock markets over time, offering higher returns for investors willing to accept the associated risks and illiquidity.
Additional Insights on Private Equity Performance
Here are some authoritative sources supporting this proposition:
- Hamilton Lane Analysis: Research indicates that private equity, on a net basis, has outperformed public equities over most of the past 20 years, showcasing consistent superior returns. Hamilton Lane
- Investopedia Insights: Data reveals that private equity produced average annual returns of 10.48% over a 20-year period, surpassing the S&P 500’s average annual return of 5.91% during the same timeframe. Investopedia
- PitchBook Data: Over a 13-year period, private equity funds generated a compound annual growth rate (CAGR) of 8.9%, compared to a 2.8% CAGR for the Russell 3000, highlighting PE’s superior performance. PitchBook
Beyond potential higher returns, private equity offers several advantages that make it an attractive investment option:
- Active Management: PE firms often take an active role in managing portfolio companies, implementing strategic and operational improvements to enhance value. Moonfare
- Long-Term Focus: Private equity investments are typically long-term, allowing for strategic planning and value creation without the short-term pressures faced by public companies. Funding Family
- Diversification: Including private equity in an investment portfolio can provide diversification benefits, as PE investments often have low correlation with public markets. Alternatives Investor
- Access to Unique Opportunities: PE investors can access exclusive deals and investment opportunities not available in public markets, potentially leading to higher returns. Moonfare
It’s important to note that private equity investments also come with certain risks and considerations, such as illiquidity, higher fees, and longer investment horizons. Therefore, they may be more suitable for investors with a higher risk tolerance and a long-term investment perspective.
Recent Insights on Private Equity Performance and Trends
The Times & The Sunday Times — Private equity isn’t all bad. It can help turbo-charge firms
