Has Private Equity Outperformed Public Equities?

Abstract

We present new and updated evidence that investments in buyout and venture capital have outperformed their public-market equivalents on average over the past 30 years. When comparing private-equity performance with that of public equity, it is critical to use an index that accurately mirrors the riskiness of private equity. We use direct alpha to measure private-equity outperformance after adjusting for differences in geography, size and time-varying leverage and sub-industry composition. We find pooled, annualized excess returns to buyout have been 3.8% for vintages 1994 to present, while the analogous excess returns to venture capital have been 2.0%. For vintages since 2000, the corresponding figures are 2.9% for buyout and -0.4% for venture capital. Pooled measures naturally weight larger vintages (such as the more recent ones) more heavily; in contrast, means weight all vintages equally. Mean excess returns since 1994 (2000) for buyout have been 5.2% (4.0%) and for venture capital around 8.1% (-0.2%).