Understanding Private Fund Performance

Abstract

We study the net performance of 6,000 private funds from 1980 to 2022, covering buyout, venture, credit, and real estate funds. We find wide dispersion in funds’ lifetime performance in all asset classes. Performance relative to public benchmarks depends crucially on the choice of benchmark, and the average fund’s public market equivalent is between 0.81x and 1.13x relative to style indices. Periodic returns are markedly more correlated with public factors following the adoption of fair value accounting, though a considerable fraction of their variation remains unexplained. Since private funds expand public investors’ opportunity set, this suggests considerable diversification benefits.

Keywords: Private equity, private credit, public market equivalent, performance dispersion, diversification, fair value accounting

JEL Classification: G11, G12, G24