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Private Equity

Private equity outperformance a ‘coin flip’ vs. public equities – report

Private equity funds have relatively been on the same pace with the bull market in public equities, according to a PitchBook report released Thursday.

PitchBook uses the Kaplan-Schoar public market equivalents method in which a value greater than 1.0 implies outperformance of the public index net of fees. PitchBook found that private equity funds raised in 2006 through 2015 just barely produced a Kaplan-Schoar public markets equivalent of more than 1.0, indicating slight outperformance relative to the S&P 500 Total Return index. The Kaplan-Schoar public markets equivalent of all funds raised in 2006 to 2015 ranged from 0.91 for 2010 funds to a high of 1.07 for 2012 funds.

"Whereas an investor in PE two decades ago could essentially pick a GP at random and have a better than 75% chance of 'beating the market,' for vintages since 2006 those odds are worse than a coin flip," the study noted. One reason is the stock market's nine-year bull run, the study indicated.

Overall, alternative investment — which includes private equity, venture capital, private debt, real assets, fund of funds and secondaries fund — has provided an internal rate of return of 15.95% for the year, 12.85% for the five years and 8.44% for the 10 years ended Dec. 31. Private equity produced an IRR of 17.85% for one year, 12.87% for the five years and 12.9% for the 10 years ended Dec. 31. Meanwhile, venture capital IRRs were 9.87% for the year, 11.96% for the five years and 7.48% for the 10 years ended Dec. 31, PitchBook data shows.

By comparison, the S&P 500 index was up 13.6% for the year, 13.69% for the five years and 9.06% for the 10 years ended Dec. 31.

The report is available for download on Pitchbook's website.