What the Evidence Says About Private Equity Returns

Private equity (PE) has been one of the most aggressively marketed asset classes to HNW and institutional investors over the past decade. The combination of illiquidity premium claims, complexity premium arguments, and the compelling narrative of operational transformation makes for persuasive material. But the empirical evidence on PE returns is more nuanced than the marketing suggests — and the returns available to individual HNW investors are typically more modest than the headline figures from top-tier buyout funds. This guide examines what the evidence actually shows.

The Measurement Challenge: IRR vs MOIC

PE returns are typically reported using two metrics that are frequently misunderstood and occasionally manipulated in marketing contexts:

IRR (Internal Rate of Return): The annualised rate of return implied by the timing and magnitude of cash flows (capital calls and distributions). IRR can be significantly inflated by the timing of distributions — early realisations and delayed capital calls mathematically boost IRR without necessarily reflecting superior investment skill. A fund that realises half its portfolio early at a 2x multiple and holds the rest for a decade at breakeven will report a higher IRR than a fund that achieves a higher overall multiple with later distributions.

MOIC (Multiple on Invested Capital): The total cash returned divided by total capital invested. A 2.0x MOIC means the investor received twice the capital invested, regardless of timing. MOIC is a cruder but more reliable measure of actual wealth creation. A 2.0x MOIC over 5 years is superior to a 2.0x MOIC over 10 years, but the MOIC figure alone doesn't tell you that.

A complete assessment requires both metrics alongside the relevant time horizon. Be cautious of marketing materials that foreground IRR without MOIC context, or vice versa.

PME: The Relevant Benchmark

The standard benchmarking methodology for PE returns is Public Market Equivalent (PME), which compares PE returns against a hypothetical investment in a public market index with the same cash flow timing. Several PME methodologies exist (Kaplan-Schoar PME, Direct Alpha, mPME); the Cambridge Associates/KS PME is widely used in academic literature.

PME controls for the S-curve problem: PE funds call and return capital over time, making simple annualised return comparisons with public indices misleading. By replicating the timing of PE cash flows in a public market index, PME answers the question: did PE actually beat what you would have earned by investing and withdrawing from public markets at the same times?

The PME-adjusted evidence is less flattering to PE than gross return comparisons:

• Average PE: Studies including Phalippou & Gottschalg (2009), Harris, Jenkinson & Kaplan (2012, 2014), and subsequent updates find that the average buyout fund has broadly matched or modestly outperformed public markets on a PME basis, once fees are accounted for.
• Top-quartile PE: Genuinely outperforms public markets on a PME basis, sometimes by a meaningful margin. The problem is that top-quartile funds are oversubscribed and largely inaccessible to non-institutional investors.
• Net of fees: The management fee (typically 1.5–2% of committed capital per annum during the investment period) and carried interest (typically 20% of profits above an 8% hurdle rate) materially reduce net returns. A gross IRR of 20% does not translate to a net IRR of 20%.

Cambridge Associates Data: The Institutional Benchmark

Cambridge Associates publishes regular benchmark data on PE, venture capital, and other private market asset classes, drawn from a large database of institutional fund performance. Their US PE & VC benchmarks — covering vintages back to the 1980s — are among the most widely used reference points in the industry.

Key findings from CA data as generally cited:

• US buyout returns have, on average, produced net PME multiples slightly above 1.0 (meaning modest outperformance of public markets) over long sample periods, though with significant vintage-year variation.
• Venture capital returns are bimodal: a small number of exceptional vintages and funds drive most of the outperformance; the median VC fund has underperformed public markets on a PME basis.
• European PE returns broadly mirror the US pattern, though with somewhat lower average multiples and more manager dispersion.

It is worth noting that CA data suffers from survivorship bias (failed and wound-down funds are less well represented) and self-reporting bias, both of which tend to inflate apparent average performance.

Vintage Year Variation

PE returns are heavily dependent on the year of commitment. Vintage years coinciding with:

• Low entry multiples (post-crisis buyouts in 2009–2012 were exceptional)
• Accommodative exit environments (2012–2015 and 2019–2021 were strong exit windows)
• Appropriate leverage conditions

...tend to produce superior returns. Vintage years with elevated entry multiples (2006–2007, and arguably 2021) and subsequent credit tightening are more likely to disappoint.

As of 2026, the 2021 and 2022 vintage years face scrutiny: those funds bought assets at high multiples (often 15–20x EBITDA) using leveraged finance at low interest rates. The subsequent rate increase has increased the cost of that leverage and is likely suppressing returns for those vintages. The outlook for 2024–2025 vintage commitments is more interesting, as entry multiples have compressed and the debt service burden is more realistically priced.

Manager Persistence: Does It Exist?

The central claim for HNW PE investors is that superior manager selection — backing top-quartile GPs consistently — can deliver genuine alpha. Academic research provides partial support: Harris, Jenkinson, Kaplan & Stucke (2014) found evidence of meaningful but imperfect performance persistence in buyout PE, with top-quartile managers modestly more likely to achieve top-quartile performance in subsequent funds. However, the persistence is weaker for venture capital and has arguably weakened over time as more capital has chased top-performing managers.

Practically: the managers with the best historical track records (Carlyle, KKR, Blackstone, Apollo at buyout scale; Sequoia, Andreessen Horowitz in venture) are largely unavailable to individual HNW investors at standard fund entry. They are fully subscribed by sovereign wealth funds, pension funds, and endowments with existing LP relationships.

What is available to individual HNW investors (via platforms, feeder funds, or fund-of-funds) is typically:

• Second and third-quartile managers, or
• Top-quartile managers accessed through a fund-of-funds structure with an additional layer of fees

The expected returns from this accessible universe are considerably more modest than the headline PE marketing figures.

Fees: The Silent Wealth Destroyer

The "2 and 20" fee structure (2% management fee, 20% carried interest) is ubiquitous in institutional PE. On a 10-year fund:

• Management fees alone consume approximately 20% of committed capital in aggregate (2% × 10 years, though the fee basis typically shifts from committed to invested capital after the investment period)
• Carry of 20% above the 8% hurdle rate can consume a further significant portion of gross returns

For fund-of-funds or access platforms, there is typically an additional layer: 0.5–1% management fee plus 5–10% carry charged by the intermediary. This double-fee structure meaningfully reduces net returns; a gross buyout return of 18% may net to 12–13% to the end investor, and a gross return of 12% may net to 8–9% — which starts to look less compelling against accessible public market alternatives.

Listed Private Equity vs Unlisted

Listed PE vehicles (3i Group, HarbourVest, ICG Enterprise Trust, others traded on the London Stock Exchange) provide liquidity, regulatory transparency, and daily pricing. They trade at discounts or premiums to NAV that can be significant; during 2022–2023, many listed PE vehicles traded at discounts of 20–40% to NAV, effectively offering attractive entry points for investors willing to hold through volatility.

The listed vehicle approach does not replicate the actual GP relationship and access that institutional investors in unlisted funds receive, but it provides a reasonable proxy for PE returns with far lower minimum commitments and the ability to exit via the secondary market.

Minimum Commitments and Liquidity

Institutional PE fund minimum commitments range from USD 5–10 million for smaller specialist funds to USD 25–50 million for top-tier buyout funds. Most individual HNW investors access PE through feeder funds (minimum USD 250,000–1 million) or platforms with lower minimums.

Liquidity is extremely limited. PE fund commitments are locked up for the fund life (typically 10–12 years); early exit via the secondary market is possible but typically at a discount to NAV and with frictional costs. Investors should only commit capital they genuinely do not need access to over a decade.

How Global Investments Can Help

We assist HNW clients in evaluating private equity access vehicles objectively — assessing manager track records against PME benchmarks, reviewing fee structures, and considering PE commitments in the context of an overall portfolio liquidity profile. We are not aligned with any specific PE platform and can compare options across the market. Speak to our team if you are considering a PE allocation.