Macroeconomic Conditions and Private Equity Fund Returns—A Swiss Perspective

Abstract

Using a hand-collected dataset of 531 private equity funds, the author shows that macroeconomic conditions influence private equity fund returns. He finds that weak economic growth, low corporate bond yields, and low stock market valuations during the period when investments are taking place favor returns. Moreover, a positive change in economic growth and rising stock market valuations over the lifetime of a fund also support private equity fund returns. For example, corporate bond yields and gross domestic product growth during the investment period together explain between 9% and 29% of the variance of the internal rates of return. Being robust to different sample periods, these results are consistent with prior research.