LBS logo London experience. World impact.

Studies undervalue private equity

07 Mar 2012


London Business School's Chris Higson has presented a ground-breaking piece of research on private equity performance.

calc 

London Business School academic Chris Higson,  teamed up with Dr Ruediger Stucke from Oxford University to reveal that previous research on this subject has significantly understated private equity returns.

Their research indicated that, in terms of internal rates of return (IRR), the S&P 500 was outperformed by US buyout funds with vintages between 1980 and 2005 by 8%, although the difference dropped to 5% when figures from 2006 to 2008 were included.

They went on to reveal that the performance of funds varied significantly with only 60% of funds displaying a positive IRR spread against the stock market as a comparison.

Higson said: "For many years there has been ambiguity in the evidence about private equity performance, that has been troublesome both for the industry itself and for commentators trying to understand the economics of buyouts. This paper finally resolves that issue and can be taken as definitive."

Previous studies have concluded that returns from private equity, net of fees, have been no better than public market measures such as the S&P 500, but the pair argued that this is simply not the case.

Their findings were revealed at an event organised by the Coller Institute of Private Equity last month.