There is a significant body of research that suggests that over the long-term, Private Equity has on average outperformed public equity. However as an actively managed investment strategy, there is significant dispersion between the performance of Private Equity funds, and there is no investable benchmark or ETF. Note that past performance is not indicative of future returns.

Outperformance of Public Equity

When the average performance of Private Equity funds is compared to public equity market performance, Private Equity can be seen to outperform in most vintages. This analysis is made on a Public Markets Equivalent (“PME”) basis; this involves modelling the return that would have been generated in public markets if the same cash flows were invested as the actual private equity cash flows. Using data from Pitchbook Benchmarks, the average Private Equity fund has outperformed public equity markets (as measured by the S&P 500 index) in 75% of the vintage years from 2001 to 2016 (note that 2017 and 2018 vintage funds are still too immature to be included in the Pitchbook private equity benchmarks).

Reasons for this outperformance can vary, though most market participants would point to the so-called “illiquidity premium”, a theoretical concept that states that investors demand a higher return in compensation for investing their capital over a longer period of time.

In reality, Private Equity funds have a number of tools at their disposal that can help to drive outperformance. These include having outright control over the company, availability of capital for bolt-on acquisitions, and the ability to incentivise management to achieve longer term growth. These factors, and others, will be the subject of a future Truffle post.

Source: Pitchbook Benchmarks, Private Markets data through Q1 2018, Private Equity PMEs by Vintage. Past performance is not indicative of future returns.

Dispersion of Returns

Whilst the data suggests that, on average, Private Equity funds have historically outperformed public equity, there is significant dispersion of returns between different Private Equity funds. For example, the inter-quartile range (the spread of the middle 50% of the datapoints when arranged in order) averages 20% for private equity vintages between 2001 and 2016. Taking the 2012 vintage as an example, the top performing 25% of funds generated IRRs of at least 21%, compared to just 8% or less for the lowest performing quartile. Manager selection therefore can have a significant impact on the returns from investing in Private Equity.


Private Equity has, on average, outperformed public equities over the long-term. However, it is not possible to invest in “average” Private Equity as there is no investable benchmark or ETF. Consequently, the range of returns from Private Equity funds makes manager selection and access to high quality managers a key component of an investor’s Private Equity strategy. Put simply, top performing Private Equity funds have often significantly outperformed public markets, whereas weaker Private Equity funds have often underperformed. Note that past performance is not indicative of future returns.