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Does Private Equity Deliver Alpha

The term private equity – PE – is used to describe various types of privately placed (non-publicly traded) investments. It has grown tremendously over the past 30 years – thanks largely to America’s pension funds as they search for alternatives to public equity markets that might help them meet their return objectives.

Frank Jian Fan, Grant Fleming, and Geoffrey J. Warren, authors of the study “The Alpha, Beta, and Consistency of Private Equity Reported Returns,” which appears in the Fall 2013 issue of the Journal of Private Equity, examined the performance of both buyout and venture capital – VC – funds through 2011. Their study adds to the literature on private equity by incorporating the factors of size and value – instead of benchmarking returns to a single broad market index. They also benchmarked returns against investable index funds, rather than just the index itself (which doesn’t have costs). In addition, they considered whether the reported returns of these funds lag market returns.

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