How Do Private Equity Investments Perform Compared to Public Equity?

37 Pages Posted: 23 Apr 2015 Last revised: 9 Feb 2021

See all articles by Robert S. Harris

Robert S. Harris

University of Virginia - Darden School of Business

Tim Jenkinson

University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Steven N. Kaplan

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); University of Chicago - Polsky Center for Entrepreneurship

Date Written: June 15, 2015

Abstract

The merits of investing in private versus public equity have generated considerable debate, often fueled by concerns about data quality. In this paper, we use cash flow data derived from the holdings of almost 300 institutional investors to study over 1,800 North American buyout and venture capital funds. Average buyout fund returns for all vintage years but one before 2006 have exceeded those from public markets; averaging about 3% to 4% annually. Post-2005 vintage year returns have been roughly equal to those of public markets. We find similar performance results for a sample of almost 300 European buyout funds. Venture capital performance has varied substantially over time. North American venture funds from the 1990s substantially outperformed public equities; those from the early 2000s have underperformed; and recent vintage years have seen a modest rebound. The variation in venture performance is significantly linked to capital flows: performance is lower for funds started when there are large aggregate inflows of capital to the sector. We also examine the variation in performance of funds started in the same year. We find marked differences between venture and buyout leading to a much more pronounced impact of accessing high performing funds in venture investing.

Keywords: private equity, venture capital, performance, public markets

JEL Classification: G10, G24, G30

Suggested Citation

Harris, Robert S. and Jenkinson, Tim and Kaplan, Steven Neil, How Do Private Equity Investments Perform Compared to Public Equity? (June 15, 2015). Darden Business School Working Paper No. 2597259, Available at SSRN: https://ssrn.com/abstract=2597259 or http://dx.doi.org/10.2139/ssrn.2597259

Robert S. Harris (Contact Author)

University of Virginia - Darden School of Business ( email )

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HOME PAGE: http://www.darden.virginia.edu/faculty/harris.htm

Tim Jenkinson

University of Oxford - Said Business School ( email )

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HOME PAGE: http://www.sbs.oxford.edu/timjenkinson

European Corporate Governance Institute (ECGI) ( email )

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Belgium

HOME PAGE: http://www.ecgi.org

Steven Neil Kaplan

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
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773-702-4513 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

University of Chicago - Polsky Center for Entrepreneurship

Chicago, IL 60637
United States

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