ClickCease
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong. Take 2 mins to learn more.
Learning

The outperformance of Private Equity

During the last decade, PE has become increasingly popular, drawing new interest from institutional and high net worth individuals. Since the Global Financial Crisis…

During the last decade, PE has become increasingly popular, drawing new interest from institutional and high net worth individuals.

Since the Global Financial Crisis (“GFC”), assets managed by the PE industry have more than doubled, now totalling over $3.9T.

According to a recent Business Times article, the main causes are two-fold: first, that PE has generated strong returns during times when traditional asset-class returns are on a downtrend, and second, that PE helps facilitate portfolio diversification.

Those strong returns are exhibited by comparing PE to the public markets, with PE outperforming the  S&P 500 by 597 basis points over a 20-year time horizon and by 489 basis points over a 15-year period.

The Business Times posited three possible explanations for PE’s outperformance:

  • The combination of a focus on sectors with a clear growth path with a long-term investment
  • The selection and investment in businesses that are more resilient and have higher growth, with more capital at their disposal, following a systematic and operationally focused approach to value creation
  • The ability to take a long-term, opportunistic buy-and-build approach to consolidation

In downturns, PE-backed companies are generally more resilient and can act as an economic stabiliser during a recession, according to a recent Harvard-backed study. The study, which focused on the GFC, found that such companies were less likely to face financial constraints during the crisis and that PE firms were significantly more likely to assist portfolio companies with their operating problems and provide strategic guidance.

In looking at the differences between PE firms today and during the GFC period, the Business noted that such firms are better prepared today as a result of:

  • More capital as its disposal, with dry powder of $2.5T  
  • Expanded operating capabilities
  • Rapid rise of private credit

Source: Business Times

Important notice: This content is for informational purposes only. Moonfare does not provide investment advice. You should not construe any information or other material provided as legal, tax, investment, financial, or other advice. If you are unsure about anything, you should seek financial advice from an authorised advisor. Past performance is not a reliable guide to future returns. Don’t invest unless you’re prepared to lose all the money you invest. Private equity is a high-risk investment and you are unlikely to be protected if something goes wrong. Subject to eligibility. Please see https://www.moonfare.com/disclaimers.

Webinar

White paper

Webinar

White paper

Webinar

White paper

Sources

Related Content

Join Moonfare Now.

Benefit from what institutional investors already know: the greatest shareholder value comes from private markets, and funds like those offered on Moonfare have generated an average IRR of 19% — outperforming the S&P 500 by 13%.*

Sign up now

Join The Satellite.

Weekly updates on Investment and Finance.

Subscribe now

* Past performance is no guarantee of future returns.

{ "@type": "Person", "name": "Zeke Turner", "jobTitle": "Fund Marketing Specialist", "sameAs": ["https://www.linkedin.com/in/zeke-turner/"], "knowsAbout": ["Private Equity", "Venture Capital", "Investing", "Journalism"], "alumniOf": [ { "@type": "CollegeOrUniversity", "Name": "INSEAD", "sameAs": "https://en.wikipedia.org/wiki/INSEAD" }, { "@type": "CollegeOrUniversity", "Name": "Dartmouth College", "sameAs": "https://en.wikipedia.org/wiki/Dartmouth_College" } ] }
{ "@type": "Person", "name": "Jason Feder", "description": "Jason is a member of Moonfare’s legal team, with experience in financial regulation and white collar litigation. He holds a B.A. from UCLA and a J.D. from Indiana University.", "jobTitle": "Senior Legal Counsel", "sameAs": [ "https://www.linkedin.com/in/jfeder/" ], "knowsAbout": [ "Law", "Financial Law" ], "alumniOf": [ { "@type": "CollegeOrUniversity", "Name": "University of California, Los Angeles", "sameAs": "https://en.wikipedia.org/wiki/University_of_California,_Los_Angeles" }, { "@type": "CollegeOrUniversity", "Name": "Indiana University Maurer School of Law", "sameAs": "https://en.wikipedia.org/wiki/Indiana_University_Maurer_School_of_Law" } ] }