Why is the Evidence on Private Equity Performance So Confusing?

Abstract

Private equity industry associations announce aggregate performance every quarter. Typically these returns are largely above those of public equity markets over long horizons. These numbers are widely disseminated and commented on by the press and have probably played a role in the strong increase in allocation to private equity over the last decade. In contrast, academic studies find returns that are closer to those of public equity (on aggregate). This paper argues that in theory these two results are not necessarily inconsistent. The methodology used in practice can, hypothetically, generate these large returns while the true underlying return may be close to that of the public equity.

JEL Classification: G23, G24