Does an allocation to private equity add value?
July 7, 2021
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It is difficult to gauge private equity fund performance, especially compared to public equity. Researchers have reached conflicting conclusions using a variety of methodologies and datasets, leading investors to question the benefit of private versus public investments.
In our latest analyst note, PitchBook analyst Andrew Akers introduces a new method to analyze PE performance by examining the impact of adding PE to a balanced portfolio. A few key takeaways:
The addition of a 20.0% allocation to randomly selected PE buyout funds in a simple 60/40 portfolio added an average of 0.6% in annualized excess returns over 100 simulations from 1997 to 2020.
Evaluating performance at the total portfolio level removes the need to use IRRs to measure performance because all the cash flows to and from the PE funds remain in the portfolio.
Differences in fund selection created a wide dispersion of excess returns across the simulations—the annualized excess returns of the upper and lower quartiles were 0.9% and 0.4%, respectively.
In our latest analyst note, PitchBook analyst Andrew Akers introduces a new method to analyze PE performance by examining the impact of adding PE to a balanced portfolio. A few key takeaways:
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