PEI 300: Private equity beats the public markets

Private equity funds continue to do better than public markets but the extra return has shrunk by more than half since 2011, according to PEI 300 Bison PME Alpha data.

An analysis of funds included in Private Equity International's ranking of the biggest 300 GPs showed that performance of the asset class relative to the public markets is picking up again, but still remains about half of what it was four years ago.

The PEI 300 Bison PME Alpha, which measures the extra return that investors in private equity funds are receiving over the Russell 3000 index, stood at 5.2 percent at the end of the third quarter 2015 when it reported its latest results.

This is up from 4.8 percent the previous year and reversed the trend of recent years when the extra return had been shrinking. But it is still about half of where it stood in Q32011, when the PEI 300 Bison PME Alpha was at 11 percent.

The drop of recent years can be mainly attributed to the strong performance of public markets, as the Russell 3000 gained more than 75 percent between the third quarter of 2001 and the third quarter of 2015. 

In comparison, private equity returns have remained largely stable. PEI 300 firms have posted an average net internal rate of return of 13.3 percent in the third quarter of 2015, slightly up from the 12.9 percent of the third quarter of 2011. PEI 300 average returns peaked a year ago at 13.8 percent during that period.

The PEI 50 Bison PME Alpha returned 6.8 percent in the third quarter of 2015, up from 6.5 percent a year ago but down from 13.1 percent in the third quarter of 2011. The PEI 10 Bison PME Alpha returned 6.5 percent in the third quarter of 2015, in line with last year but down from 11.8 percent in the third quarter of 2011.

If volatility in the stock markets continue as it has been the case on and off in the past few quarters, it's likely that the PEI 300 Bison PME Alpha will continue to rise. 

To read the full PEI 300 report click here .