Private Equity Historical Performance


Taking a look at private equity’s solid track record over time

Historical performance

When we take a look at past performance of private equity funds we see that as a whole they consistently produce greater returns than the public markets. The measure most commonly used to measure private equity performance is IRR — internal rate of return. The IRR is the annualized return that an investment is expected to make. The Y axis on the graph below is IRR. Additionally, direct alpha (the value in green below) is a commonly used measure of outperformance in alternatives. This data point provides a direct calculation of the private equity portfolio alpha compared to the public market equivalent. For instance, a 2.0x means that the PE investment has generated a 20% outperformance over the equivalent public market index.

As you can see in the chart below there are years that private equity significantly outperforms the public markets (2014–2018) and other periods of time where the outperformance is more muted. (2006–2010). This gap is measured and displayed by the direct alpha metric discussed above. It is worth mentioning that although the direct alpha metric can vary, since 2002 global private equity funds have always outperformed the MSCI and have had a positive direct alpha.


Another way to look at private equity performance in the context of public market performance is by calculating the theoretical performance of $100 invested in a private equity fund vs. the S&P 500. You can see this in the graph below. However, one point to note, this calculation is a bit of an oversimplification as private equity funds are less liquid than their public equity counterparts. Regardless, it is another way to view historical performance across different asset classes and it continues to show investors how private equity funds have historically outperformed public markets.

Top quartile performance

The graphs above look at private equity funds pooled together and is summarized at a global level. However, this view can mute the strong performance of top quartile managers. We know there is great variation of performance depending on the fund manager, strategy, etc. The graph below looks at the band of private equity funds. As you can see below the returns of top quartile funds are consistently outstanding compared to their public market benchmarks. On average, these top quartile managers have a 10% outperformance vs. their public market equivalents.

How PE performs during times of distress

Not only do private equity firms outperform their public counterparts historically, they do remarkably well during market downturns. The graph below again looks at direct alpha as a measure. As you can see during the Global Financial Crisis the pooled direct alpha of private equity funds is the highest during this period. The industry as a whole outperformed the public markets by more than 10% from 2007–2009, the heart of the crisis. It can easily be seen that private equity funds are a way to add downturn protection to your portfolio, a topic we discuss further in our prior post, The Importance of Diversification.

Here at Aqua we want every investor to have access to this strong performing asset class, not just the large institutions and endowments. Head over to to check out our current offerings and start investing like the pros!