Private Equity Performance: What Do We Know?

Robert S. Harris, Tim Jenkinson, Steven N. Kaplan

NBER Working Paper No. 17874
Issued in February 2012
NBER Program(s):   AP   CF

We present evidence on the performance of nearly 1400 U.S. private equity (buyout and venture capital) funds using a new research-quality dataset from Burgiss, sourced from over 200 institutional investors. Using detailed cash-flow data, we compare buyout and venture capital returns to the returns produced by public markets. We also compare the evidence from Burgiss to that derived from other commercial datasets – Venture Economics, Preqin and Cambridge Associates – as well as recent research. We find better buyout fund performance than has previously been documented. This in part reflects recently discovered problems with data provided by Venture Economics, upon which several previous studies had relied. Average U.S. buyout fund performance has exceeded that of public markets for most vintages for a long period of time. The outperformance versus the S&P 500 averages 20% to 27% over the life of the fund and more than 3% per year. Average U.S. venture capital funds, on the other hand, outperformed public equities in the 1990s, but have underperformed public equities in the 2000s. Using individual fund data, we explore the relationship between absolute measures of performance – internal rates of return (IRRs) and multiples of invested capital – and performance relative to public markets. Within a given vintage year, performance relative to public markets can be predicted well by a fund’s multiple of invested capital and IRR, so we are able to estimate the performance relative to public markets that would have been derived from the other commercial datasets, had the required cash-flow data been available. Private equity performance in the other commercial sources – other than Venture Economics – is qualitatively similar to that we find using the Burgiss data.

An NBER digest for this paper is available.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Acknowledgments and Disclosures

Machine-readable bibliographic record - MARC, RIS, BibTeX