[et_pb_section fb_built="1" admin_label="section" _builder_version="4.16" global_colors_info="{}" theme_builder_area="post_content"][et_pb_row admin_label="row" _builder_version="4.16" background_size="initial" background_position="top_left" background_repeat="repeat" global_colors_info="{}" theme_builder_area="post_content"][et_pb_column type="4_4" _builder_version="4.16" custom_padding="|||" global_colors_info="{}" custom_padding__hover="|||" theme_builder_area="post_content"][et_pb_text admin_label="Text" _builder_version="4.27.4" background_size="initial" background_position="top_left" background_repeat="repeat" hover_enabled="0" global_colors_info="{}" theme_builder_area="post_content" sticky_enabled="0"]<p class="insights-desc">This original CEM research was published in the December 2020 edition of the Journal of Investing. To get a copy of the article’s reprint, just click the download button below.</p>
<p><b>ABSTRACT</b></p>
<p>The CEM database contains private equity true-time weighted portfolio returns net of investment costs, along with self-reported benchmark returns for some of the largest institutional investors in the world. To quantify performance, the article uses a consistent benchmarking methodology, employing geographic blends of small-cap equity indexes and showing that the method yields a better benchmark. From 1996-2018, private equity slightly underperformed the benchmarks, indicating that the returns for private equity are comparable to those of listed equity.</p>
<p><b>KEY FINDINGS</b><span></span></p>
<ul>
<li style="list-style-type: none;">
<ul>
<li>Of the private equity benchmarks currently used by investors, most are flawed. A benchmarking method using listed small-cap equity, with a lag of between three and five months, is sufficient to benchmark most private equity portfolios.</li>
<li>The average private equity portfolio historically underperformed this simple investible benchmark. The average net value added from 1996-2018 is -0.67%</li>
<li>Cost strongly affects relative performance; low-cost internal direct or co-investment private equity outperforms high-costs fund-of-funds private equity.</li>
</ul>
</li>
</ul>
<p><b>TOPICS</b></p>
<p><span>Private equity, performance measurement, equity portfolio management, style investing, statistical methods, pension funds*</span></p>
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