Private Equity Returns Are Robust, But Can This Winning Asset Class Keep Its Edge?


Long experience has accustomed institutional investors to expect that private equity (PE) will remain their best-performing asset class. But as recently as 2009 and 2010, PE returns lagged the public equity markets, and worries mounted that PE investments made during the boom years would end up being a disaster.

However, as we explain in Bain & Company’s Global Private Equity Report 2015, PE is back. Riding the tailwinds of sharply higher public equity markets, PE returns had another strong showing in 2014. According to data compiled by Cambridge Associates, an investment consulting firm, nearly every major category of PE matched or exceeded the strong double-digit one-year gains racked up in 2013. A cascade of capital is flowing to PE investors. A recent survey by Preqin, the alternative assets data provider, found that just one out of every 12 limited partners felt that PE failed to meet its expectations compared with one in four surveyed in July 2009. A wave of market beta—a heady mix of GDP growth, near-zero interest rates and covenant-lite loans, and rising mark-to-market valuations—helped power PE’s rebound. General partners also had a starring role in the recovery, through smart financial and operational restructuring of assets that fortified them against the economic storm and positioned them to benefit from the recovery. Together, the combination of market beta and the alpha of active value creation engineered PE’s resurgence. PE returns are up both in the short run and over the longer term….

Private Equity Returns Are Robust, But Can This Winning Asset Class Keep Its Edge?

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