This recent analyst note details our new Private Equity Barometer, which is a factor-based framework that assesses which external indicators are important to aggregate PE returns, including public equity returns, economic activity, and credit conditions.
Our research suggests that PE returns are highly related to moves in the economy and broader financial markets. The set of indicators included in the Barometer can explain the majority of variation in historical quarterly PE returns. Additionally, the relationship between the Barometer and PE returns has increased during times of market stress.
These research findings have important implications for institutional investors that allocate to PE because overall portfolio risk tends to be concentrated in these factors in traditional allocations.
On an ongoing basis, private market investors can use the PE Barometer to track key economic and market indicators and objectively relate them to PE returns.