Private Equity Performance: Better Than Commonly Believed

Abstract

This article reexamines the performance of private equity (PE) funds by including data from more recent PE vintages and by using a measure of PE performance that considers the opportunity cost that investors incur between the commitment and capital call dates and the duration of PE investment. The primary results indicate that 1) buyout funds have better standalone long-term risk–return characteristics than public equity markets and they perform counter-cyclically to public equity markets; 2) when venture funds are combined with buyout funds, the resulting mix provides a more attractive alternative to public equity markets than buyout funds alone provide; and 3) venture funds’ higher absolute returns as compared to buyout funds and public equity markets are restricted to a few vintages and a small number of big winners in those vintages. Other findings suggest that a manager’s past PE fund performance is a weak basis for forecasting future PE fund performance and that fund size is positively correlated with performance for venture funds but negatively correlated with performance for buyout funds.