The Performance of Major Private Equity/Leveraged Buyout Firms

Dear all,

According to this new article from Alpha Architect, the performance of majority of PE/LBO firms superior returns are exaggerated.

Investor Takeaways

There are several key takeaways for investors.

First, the claims of superior risk-adjusted performance by the PE industry are exaggerated. Given their lack of liquidity, opaqueness, and greater use of leverage, it seems logical that investors should demand something like a 3-4% IRR premium. Yet, there is no evidence that the industry overall has been able to deliver that.

Second, the failure to appropriately mark-to-market investments during public market drawdowns leads investors to underestimate the risk of these investments, as the volatility is significantly understated.

Third, investors should expect that much of their capital might be outstanding even well beyond a decade—and that should undoubtedly require a risk premium.investors stand insurmountably high. Even many well-equipped investors fail to clear the hurdles necessary to achieve consistent success in producing market-beating, active management results.