Norges Bank Investment Management has today published a Discussion Note on private equity. In the note, we describe how the market has grown over time and review the academic literature. Comparing private equity funds to public equities, we find that buyout funds on average have meaningfully outperformed public equities by 3-4 percentage points annually net of fees.
Private equity refers to investments in the equity of companies that are not publicly traded. Most investors access private equity by committing capital to funds with investment strategies that target companies in different stages of their lifecycle. Measured relative to the public equity market, private equity has grown from 4 percent in 2010 to 9 percent in 2022.
We find that buyout funds have outperformed public equities by 3-4 percentage points annually net of fees, on average. Our findings for buyout funds align with other studies in the literature. We continue to find excess return for buyout after accounting for market risk and other risk factors. The results for venture capital funds and growth funds are weaker, but likely depend on the sample period studied. Recent venture capital performance looks more positive.
We find that performance is highly dispersed and depends on strategy, timing, and manager selection. As a result, the implementation of private equity and selection of private equity funds require careful consideration from investors.
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