Does Private Equity Really Beat Public Markets?
A Fresh Look at the Evidence
Ashley Lester, Luis O’Shea, and Patrick Warren, authors of the study “Has Private Equity Outperformed Public Equity?” published in the Fall 2025 issue of The Journal of Private Markets Investing analyzed private equity returns relative to public equities over multiple decades, using up-to-date cash-flow data and public market equivalents (PME) benchmarks. Their analysis included examining whether commonly reported outperformance claims hold up after controlling for risk, illiquidity, and other market frictions. They also tested different starting points (“vintages”), investment horizons, and geographic market mixes to account for potential survivor and vintage bias. Their database is from the MSCI private-capital universe, which is a Limited Partners-sourced dataset covering 14,453 funds and almost USD 12 trillion in committed capital across the full spectrum of private-capital strategies. They used the MSCI ACWI Index to capture broad, global public-equity returns.
Key Findings
Systematic Differences Across Private Equity That Impact Performance: Private equity broadly is overweight US companies, buyout portfolio companies tend to be more levered than their public-market counterparts, and venture-backed companies are higher beta.
Long-Term Outperformance Exists—But Is Modest: The analysis suggests that pooled, annualized excess returns, net of all fees, to buyout funds have been 3.8% for vintages from 1994 through September 2024, and 2.0% to private equity. However, performance varied considerably based on time period, geography, and market conditions.
Performance Is Cyclical and Varies by Vintage: Not all vintages outperformed—periods of capital inflows and market exuberance reduced relative performance. For example, venture capital had a string of disappointing vintages between the dot-com bust and the GFC, but since then, adjusted outperformance has generated excess returns of 1.6%.
Risk Adjustments Matter: When controlling for risk, leverage, and illiquidity, the performance advantage of private equity narrowed further, sometimes nearly vanishing in certain analyses.
Selection Effect: Top-quartile PE managers delivered much higher returns than the median, suggesting that access and manager selection remain critical.
Key Takeaways for Investors
Broad PE Allocations Can Add Value: Over most long-term horizons, a thoughtfully constructed PE allocation likely improves portfolio diversity and return potential but will not “guarantee” excess returns over public markets in every period.
Manager and Vintage Selection Are Essential: The outperformance is concentrated among the best managers and vintages, so due diligence and timing matter greatly for outcomes.
Expect Lower Liquidity and Transparency: Returns must be weighed against longer holding periods, higher fees, and more limited disclosure compared to public vehicles.
Recent Outperformance Gap Has Narrowed: In some recent periods, public equity rallies (such as those seen in “Magnificent Seven” tech stocks) have briefly surpassed PE returns, highlighting cyclical risks.
Importance of Time Diversification: As is the case with all risk assets, because performance varies across vintages a long-term horizon and discipline is required.
Manager selection is important not only because of the wide dispersion in outcomes, but because there is evidence of persistence of performance in private equity.
Performance Persistence: A Unique Asset Class Characteristic
Unlike most asset classes, private equity demonstrates notable performance persistence among both top and bottom performers. The empirical research (for example in these articles about venture capital costs, initial success, and persistence) shows that this persistence stems from:
· Reputation Premium: Successful firms can charge premium pricing for their capital based on track record.
· Access Advantage: Top-tier firms receive preferential deal flow and better investment terms, with high-reputation venture capital firms acquiring equity at 10-14% discounts.
· Network Effects: Successful managers attract better entrepreneurs and co-investment partners, creating self-reinforcing advantages.
· Important Note: The research shows that these advantages appear most pronounced in venture capital rather than leveraged buyouts.
The bottom line is that investors should be willing to pay somewhat higher expenses for superior persistent past performance.
This study reinforces the importance of robust, risk-aware measurement of alternative investments, urges allocators to temper return expectations, and emphasizes active manager vetting for PE exposure in diversified portfolios.
Larry Swedroe is the author or co-author of 18 books on investing, including his latest Enrich Your Future. He is also a consultant to RIAs as an educator on investment strategies.
Post Script: My Substack column of October 30,2025 explains Why Cliffwater’s CPEFX Is My Choice for Private Equity Exposure