Using cash flows for 7,914 private funds with vintages from 1988 to 2019, we provide the most comprehensive evidence to date on the risk-adjusted performance of private capital across asset classes and geographies. We estimate measures ranging from multiples and IRRs, through public market equivalents (PMEs) and direct alphas with betas corrected for NAV smoothing, to frontier cash-flow-based econometric models. Three conclusions emerge. First, risk adjustment has a first-order effect: on average, buyout, private debt, and infrastructure funds have reliably outperformed public benchmarks, whereas North American venture capital and private real estate funds havenot, despiteventurecapital’ssuperiorunadjustedreturns. Second, contrary to conventional wisdom, funds investing outside North America have performed well against appropriately matched non-U.S. benchmarks. Third, PMEs and direct alphas paired with well-constructed benchmarks and beta adjustments identify top-performing funds nearly as well as far more complex models. The binding constraint in evaluating private funds is benchmark quality, not econometric sophistication.
Gregory Brown, UNC Kenan-Flagler Business School
Christian Lundblad, UNC Kenan-Flagler Business School
William Volckmann, Institute for Private Capital