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Is Private Equity Delivering?

Author: Andres Reibel and Nik Morandi
Date: July 2015

A study published today by global private equity and real assets investor, Pantheon, finds that private equity has outperformed both passive and active equities on a historical basis1, net of management fees and carry. “Is Private Equity Delivering?” set out to quantify historical private equity returns from 1990 to 2006 relative to public equity benchmarks, and established significant outperformance against both the passive public equity benchmark as well as an active public equity universe.

The approach taken by the study’s authors, Dr. Andres Reibel, a member of Pantheon’s Research Team, and Nik Morandi, Global Head of Portfolio Strategy and Research, first compared the performance of U.S. buyout funds to the S&P 500 index, as a proxy for passive equities, based on a historical dataset. Building on the work of previous studies, such as Harris, Jenkinson and Kaplan2, Pantheon’s team focused on how top quartile buyout funds perform. Annualized, the study’s historical dataset suggests that top quartile U.S. private equity buyouts generated an annual net outperformance of approximately 4.9% compared to the S&P 500*.

The second part of the study considered active public equity performance. Here Pantheon compared U.S. private equity performance to that of actively-managed U.S. mutual funds, using Preqin and Bloomberg data respectively. We found net outperformance of upper quartile U.S. buyout funds relative to the U.S. mutual fund peer group3 of approximately 3.7% annually*.

The study found that excess performance was achieved even outside of the top quartile. Average buyout funds4 generated 1.0% of outperformance annually against the passive benchmark and 0.4% against the U.S. mutual fund dataset, also on a net basis*.

Nik Morandi observed: “Within the context of our study, an allocation to private equity when considered against both passive and actively-managed public equities makes sense. The outperformance seen in the study is both consistent and clearly identifiable, especially from top performing private equity managers.”

1 U.S. buyout data from Preqin with vintage years spanning from 1990 to 2006 was used for the research and findings. Please see the study, “Is Private Equity Delivering?” for the full methodology we applied and disclosure notices.

2 Private Equity Performance: What Do We Know?”, Harris, Jenkinson, Kaplan (2014). Full details on the methodology and dataset employed by the authors can be found in their paper.

3 The dataset consisted of 2,461 U.S. based mutual funds as provided by Bloomberg whose fund asset class was denoted as “equities”. Please see Pantheon’s paper for further details on the methodology.

4 Average is defined as the median performing fund in our data sample.

*Past performance is not indicative of future results. Future returns are not guaranteed and loss of principal may occur.

Geography: US

Source: Pantheon


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