How Good are Private Equity Returns?

Abstract

The authors examine the track record of private equity investments by looking at the results of recent research and then use new benchmarks to study the risk-adjusted returns of private equity investors. The authors give three reasons why it is difficult to measure private equity returns. First, market prices are typically old or not available and a high level of illiquidity is associated with the assets. Second, because of the high level of information asymmetry and the different skill levels of investors, returns to any one investor are not likely to be representative of returns across the private equity universe. Third, in spite of the dramatic growth in investment, there is still a limited history of returns.