Insights Chart of the Week

Data at a Glance

Our weekly chart leveraging Hamilton Lane's proprietary data, coupled with economic insights from our senior investment team members to address timely private market topics.

February 22, 2024

Sector Composition of Middle-Market Buyout Funds
By Count

Navigating Middle-Market Investments

A common question we hear from LPs is how fund size and sector, as it pertains to portfolio construction, should take part in the allocation conversation. We believe that, for most investors, middle-market funds offer the best risk and return trade off, and offer a deep opportunity set.

The sector allocation of these middle-market firms, in aggregate, has experienced notable shifts over time. Noteworthy trends include a discernible increase in emphasis on information technology-related sectors, coupled with a relative decline in consumer discretionary sectors. This evolution reflects the dynamic nature of market conditions and the varying returns generated by different sectors. It's evident that middle-market GPs often concentrate on just a few sectors, a strategic choice that aligns with their expertise and maximizes returns. Consequently, LPs engaging with middle-market funds should carefully consider these sector preferences when constructing their portfolios, recognizing the potential impact on overall fund performance. This nuanced approach to portfolio construction is essential for LPs seeking to navigate the evolving landscape of middle-market investments.

Corporate Finance/Buyout – Any PM fund that generally takes control position by buying a company.   


February 15, 2024

Total Exposure by Strategy
% of NAV + Unfunded

Turn of the Millennium

Private markets have undergone tremendous growth since the turn of the millennium, expanding their reach into new strategies like credit and infrastructure. This week we look at both the growth of the asset class and total exposure by strategy since 2000.

While private markets have grown rapidly since 2000, we can’t forget that they are still very small relative to the MSCI World. From a strategy perspective, private markets were dominated by equity in 2000, which encompassed 80% of all private market exposure. However, over the past decade credit, infrastructure and natural resources have taken more market share, which has remained consistent over the past two timeframes (though keep in mind the size of the total pie has grown!). What does this mean for investors? It means more choices available to them, a positive thing for those willing and able to invest the time and resources to sift through those choices.

Strategy Definitions 

Credit  – This strategy focuses on providing debt capital. 

Infrastructure – An investment strategy that invests in physical systems involved in the distribution of people, goods, and resources. 

Mega/Large Buyout – Any buyout fund larger than a certain fund size that depends on the vintage year. 

Natural Resources – An investment strategy that invests in companies involved in the extraction, refinement, or distribution of natural resources.  

Real Estate – Any closed-end fund that primarily invests in non-core real estate, excluding separate accounts and joint ventures. 

SMID Buyout – Any buyout fund smaller than a certain fund size, dependent on vintage year. 

VC/Growth – Includes all funds with a strategy of venture capital or growth equity. 

Index Definitions 

MSCI World Index – The MSCI World Index tracks large and mid-cap equity performance in developed market countries. 



February 8, 2024

15-Year Strategy Returns & Volatility
Bubbles Sized by NAV

The Tradeoff Between Risk & Return

Risk versus return: a constant tradeoff that investors look to while determining allocation percents. Here we look at the 15-year annualized returns for various private markets assets classes compared to their annualized de-smoothed volatility (a better estimator of “true” risk). The bubbles are sized according to their total industry net asset value.

Over the last 15 years, equity strategies have offered more premium returns, with buyout lower on the risk spectrum than other equity strategies. Growth equity, however, can help offer higher returns with only slightly more risk than buyout offers. Credit exhibited the lower volatility expected of that strategy, though it did not yield returns as comparable to equity. Over this timeframe, real estate is heavily influenced by the GFC-era funds. We’d expect the real estate volatility measure to continue to come down as we shift further from that timeframe. Overall, it’s important for investors to understand the risk-return tradeoffs each strategy can have and use that information during portfolio allocations to layer multiple strategies to get the risk-return profile desired of the portfolio.

Credit – This strategy focuses on providing debt capital. 

Distressed Debt – Includes any PM fund that primarily invests in the debt of distressed companies. 

EU Buyout – Any buyout fund primarily investing in the European Union. 

Growth Equity – Any PM fund that focuses on providing growth capital through an equity investment.  

Infrastructure – An investment strategy that invests in physical systems involved in the distribution of people, goods, and resources. 

Natural Resources – An investment strategy that invests in companies involved in the extraction, refinement, or distribution of natural resources.  

Origination – Includes any PM fund that focuses primarily on providing debt capital directly to private companies, often using the company’s assets as collateral.  

Private Equity – A broad term used to describe any fund that offers equity capital to private companies.  

Real Assets – Real Assets includes any PM fund with a strategy of Infrastructure, Natural Resources, or Real Estate.  

Real Estate – Any closed-end fund that primarily invests in non-core real estate, excluding separate accounts and joint ventures. 

ROW Equity – Includes all buyout, growth, and venture capital-focused funds, with a geographic focus outside of North America and Western Europe. 

U.S. Mega/Large – Any buyout fund larger than a certain fund size that depends on the vintage year and is primarily investing in the United States. 

U.S. SMID – Any buyout fund smaller than a certain fund size that depends on the vintage year and is primarily investing in the United States. 

Venture Capital – Venture Capital incudes any PM fund focused on any stages of venture capital investing, including seed, early-stage, mid-stage, and late-stage investments. 



February 1, 2024

Asset Class IRR vs. PME Spread
By Vintage Year

Different Strategies, Same Outperformance: IRR vs. PME Spread

Different asset classes can have very different return profiles, but outperformance remains a focal point regardless of strategy. This week’s chart shows the pooled IRR versus Public Market Equivalent (PME) spread by vintage year for each asset class. The public index used for each PME differs by asset class to better serve as an appropriate benchmark for each. Overall, across strategies, private markets tend to outperform their public PME. We’ve seen that to be true especially in the past decade. While real estate struggled during the GFC, it has seen the largest relative outperformance against REITs since 2010 of all the strategies, averaging over 1000 bps of outperformance. Infrastructure and credit have been more muted since 2010 but still averaging a nearly 400 bps premium to their benchmark PMEs.

There has been relative consistency over the past decade of outperformance across all strategies. While return profiles differ across asset classes, the historical spreads can help choose appropriate benchmark premiums across various asset classes.

Corporate Finance/Buyout – Any PM fund that generally takes control position by buying a company.   

Credit – This strategy focuses on providing debt capital.      

Infrastructure – An investment strategy that invests in physical systems involved in the distribution of people, goods, and resources.  

Real Assets – Real Assets includes any PM fund with a strategy of Infrastructure, Natural Resources, or Real Estate.   

Other: 

PME (Public Market Equivalent) – Calculated by taking the fund cash flows and investing them in a relevant index. The fund cash flows are pooled such that capital calls are simulated as index share purchases and distributions as index share sales. Contributions are scaled by a factor such that the ending portfolio balance is equal to the private equity net asset value (equal ending exposures for both portfolios). This seeks to prevent shorting of the public market equivalent portfolio. Distributions are not scaled by this factor. The IRR is calculated based on these adjusted cash flows.  


January 25, 2024

Periodic Table of Gross Returns
Sector Median Gross IRR by Deal Year

It’s Not Periodic Performance: Sector Allocation Can Drive Return Potential

Sector allocation can be a critical driver of private equity returns. This rather colorful chart shows median performance by sector and vintage year. Across sectors and deal vintages, gross returns have proven attractive, with only one case of a negative returning sector. Even the sectors that had been consistently at the bottom (such as energy & utilities) have recently shifted to some of the best performing sectors in recent deal years. There has been no sector that is always in the same location on the periodic table. Even sectors that have remained lower on the table have shown positive performance. The average return across all deals has remained strong, consistently nearing the mid-20 percent range. The returns have remained healthy year over year, with no evidence of performance declining.

Co-investors take note: Sector allocation should be another element to consider when building a portfolio.



January 18, 2024

Buyout IRR vs. PME
By Vintage Year

Clocking in Ahead: Buyout IRR Outperforms Global Equities

We’ve looked at buyouts in aggregate over various time horizons before, but one question remains: Are there only certain vintages driving the outperformance while others underperform? This week, we examine the pooled buyout IRR by vintage year compared to the MSCI World Private Market Equivalent (PME). While some bars show higher absolute returns than others, one thing has remained consistent: Over the last 22 vintages buyouts have outperformed global equities in every vintage. They have also done so quite handedly, outperforming with an average margin of 940 bps across vintages. Regardless of economic cycle or vintage age, buyouts have continued to show strong performance, both standalone and compared to their relevant PME. 

This consistent historical outperformance can help investors when choosing an appropriate benchmark and premium to compare returns to and suggests that it’s a good time for new investors to consider an allocation to the private markets for the consistent premium that we’ve historically seen.

Corporate Finance/Buyout – Any PM fund that generally takes control position by buying a company.  

Index Definitions: 

MSCI World Index – The MSCI World Index tracks large and mid-cap equity performance in developed market countries.  

Other: 

PME (Public Market Equivalent) – Calculated by taking the fund cash flows and investing them in a relevant index. The fund cash flows are pooled such that capital calls are simulated as index share purchases and distributions as index share sales. Contributions are scaled by a factor such that the ending portfolio balance is equal to the private equity net asset value (equal ending exposures for both portfolios). This seeks to prevent shorting of the public market equivalent portfolio. Distributions are not scaled by this factor. The IRR is calculated based on these adjusted cash flows. 



January 11, 2024

Worse Comes to Worst
Highest 5-Year Annualized Performance

Lowest 5-Year Annualized Performance

Measuring Risks: Public vs. Private Market Tradeoffs

Market volatility is an inevitable consequence of investing, but just how bad is bad when the markets take a turn for the worse? This week we examine both the lowest and the highest annualized five-year returns across various private market strategies as well as comparable public indices. Impressively, we see positive returns for developed markets buyout, credit and infrastructure, even in the worst-case scenario. Public equity and credit strategies exhibited more downside risk, generating negative returns in their worst-case scenarios. Private real estate and private natural resources historically have had negative worst-case returns but still experienced smaller losses than their public benchmarks.

Switching to the highest annualized five-year returns, private markets unsurprisingly posted impressive historical performance in the “best-case scenario” with the majority of returns exceeding 20%. While VC/Growth had the lowest worst case, the data shows the massive upside potential in that strategy as well, which can be achieved with proper manager selection. Overall, looking at the worst-case scenarios can be a useful indicator of risk in an asset class where risk is hard to measure. This would appear to suggest the downside risk is lower than the relative public benchmarks while also showing a higher upside potential. We think that is a good tradeoff for the private markets!

Corporate Finance/Buyout – Any PM fund that generally takes control position by buying a company. 

Credit – This strategy focuses on providing debt capital.     

Infrastructure – An investment strategy that invests in physical systems involved in the distribution of people, goods, and resources. 

Natural Resources – An investment strategy that invests in companies involved in the extraction, refinement, or distribution of natural resources.  

Private Equity – A broad term used to describe any fund that offers equity capital to private companies.  

Real Assets – Real Assets includes any PM fund with a strategy of Infrastructure, Natural Resources, or Real Estate.  

Real Estate – Any closed-end fund that primarily invests in non-core real estate, excluding separate accounts and joint ventures. 

VC/Growth – Includes all funds with a strategy of venture capital or growth equity. 

Index Definitions 

BofAML High Yield Index – The BofAML High Yield index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  

Credit Suisse Leveraged Loan Index – The CS Leveraged Loan Index represents tradable, senior-secured, U.S. dollar-denominated non-investment grade loans. 

DJ Brookfield Global Infrastructure Index – The DJ Brookfield Global Infrastructure Index is designed to measure the performance of companies globally that are operators of pure-play infrastructure assets.  

FTSE/NAREIR Equity REIT Index – The FTSE/NAREIT All Equity REIT Index tracks the performance of U.S. equity REITs.  

MSCI World Energy Sector Index – The MSCI World Energy Sector Index measures the performance of securities classified in the GICS Energy sector. 

MSCI World Index –The MSCI World Index tracks large and mid-cap equity performance in developed market countries. 


January 4, 2024

15-Year Asset Class Performance
Annualized Time-Weighted Return as of 6/30/2023

Return of the Premium? Charting Private Markets Performance

We all know that the private markets are a long-term asset class, so this week let’s focus on long-term returns. Here we’re showing 15-year asset class performance of the private markets against their closest public market comps. The green bars show that private markets are outperforming their benchmark index by more than 300 bps. The yellow bars show outperformance from 0-300bps and the red bars show where public markets are outperforming the private markets.

We’ll state the obvious here, but the data shows a lot of yellow and green. Yellow and green = outperformance almost entirely across the board, and in some cases quite substantially. The one exception to that would be what we’re seeing in real estate. That particular strategy is heavily influenced by GFC-era funds that weigh on longer-term performance. Overall, the long-term private market returns have historically generated meaningful return premiums over public benchmarks.

Credit – This strategy focuses on providing debt capital. 

Infrastructure – An investment strategy that invests in physical systems involved in the distribution of people, goods, and resources. 

Natural Resources – An investment strategy that invests in companies involved in the extraction, refinement, or distribution of natural resources.  

Private Equity – A broad term used to describe any fund that offers equity capital to private companies.  

Real Assets – Real Assets includes any PM fund with a strategy of Infrastructure, Natural Resources, or Real Estate.  

Real Estate – Any closed-end fund that primarily invests in non-core real estate, excluding separate accounts and joint ventures. 
 

Index Definitions 


Barclays U.S. Corporate Aggregate Index – Tracks the performance of U.S. fixed rate corporate debt rated as investment grade. 

DJ Brookfield Global Infrastructure Index – The DJ Brookfield Global Infrastructure Index is designed to measure the performance of companies globally that are operators of pure-play infrastructure assets.  

Credit Suisse High Yield Index – The Credit Suisse High Yield index tracks the performance of U.S. sub-investment grade bonds. 

FTSE/NAREIR Equity REIT Index – The FTSE/NAREIT All Equity REIT Index tracks the performance of U.S. equity REITs.  

MSCI World Energy Sector Index – The MSCI World Energy Sector Index measures the performance of securities classified in the GICS Energy sector. 

MSCI World Index – The MSCI World Index tracks large and mid-cap equity performance in developed market countries. 

Russell 3000 Index – The Russell 3000 Index is composed of 3000 large U.S. companies as determined by market capitalization. 

S&P 500 Index – The S&P 500 Index tracks 500 largest companies based on market capitalization of companies listed on NYSE or NASDAQ. 


Other 

Time-weighted Return – Time-weighted return is a measure of compound rate of growth in a portfolio. 


December 28, 2023

Private Equity IRR vs. PME Spread
Vintage Years 2016-2020

Tug of War: Private vs. Public Markets

While absolute performance has been volatile recently, we like to view private equity returns on a public market-relative basis, as that tends to provide more context for returns. This week, we examine the spread between private equity since-inception IRR and their public market equivalents (PMEs). We’ve looked at since-inception returns for 2016 – 2020 vintage years, as these were the funds that drove private market performance prior to the drawdown that began in 2022, and we’ve compared each private equity strategy against an MSCI World PME for each quarter since Q4 2021. A positive spread indicates the strategy is outperforming its PME. 

Here's the bottom line: Relative performance, especially for buyout funds, rose during 2022. That may seem counterintuitive, but in periods of volatility, historically public markets fell more sharply than private equity. Venture capital and growth equity, however, saw less of an uptick in their return premium given those strategies experienced larger markdowns. But volatility works both ways and public markets rebounded more sharply. In 2023, public markets moved up more sharply than private markets, indicating a closer spread in performance. 

Corporate Finance/Buyout – Any PM fund that generally takes control position by buying a company. 

Growth Equity: Any PM fund that focuses on providing growth capital through an equity investment.  

Private Equity – A broad term used to describe any fund that offers equity capital to private companies.  

Venture Capital – Venture Capital includes any PM fund focused on any stages of venture capital investing, including seed, early-stage, mid-stage, and late-stage investments. 

Index Definitions: 

MSCI World Index – The MSCI World Index tracks large and mid-cap equity performance in developed market countries. 


December 21, 2023

Private Credit Median Net IRR by Vintage Year Group
By Fund Age in Quarters

Does Private Credit Pacing Deserve a Rethink?

Private credit has shown consistency in performance across vintages. This is true for both end-of-day returns as well as the J-curve (or lack thereof). Here we look at the J-curve of private credit median net IRR by vintage grouping. There has been little variance in the vintage groupings throughout their life cycle. The asset class has historically shown resilience in keeping the time to break the J-curve and the depth of the J-curve low. Additionally, we see that most vintage groupings have achieved their end-of-day return fairly quickly and with a tighter band of end-of-day returns throughout vintages. This shows a lot of historical consistency for this asset class and could make the argument that, with less variance in vintages, consistent commitment pacing might not be as crucial to private credit as we see with other strategies.

Private Credit – Any fund that focuses on providing debt capital


December 14, 2023

Implementation Levers: Commitment Pacing
Private Equity Median Net IRR by Vintage Year Group

The End of the J-curve?

Private equity funds are notorious for their J-curves: An initial period of negative returns early in their life. Have fund managers gotten better at mitigating the J-curve in more recent years? The trends have shifted in a similar manner to the exposures we showed last week. Historically, private equity funds took two to three years to break the J-curve, but data for the most recent vintages show J-curves being broken during the first year. 

Not only has this trend shifted in how quickly the J-curve is broken, but how quickly performance may accelerate after the J-curve is broken. Newer vintages are hitting historic end-of-day returns in just over a year and then have been continuing to increase from there. This invites the question, “Has the J-curve of private equity been vanquished?” We think it’s unlikely the J-curve is gone for good, but the adoption of fund management best practices means there is potential for shallower and shorter than at the turn of the millennium.

Private Equity – a broad term used to describe any fund that offers equity capital to private companies. Includes funds that are buyout, venture capital, and growth equity strategies. 


December 7, 2023

Implementation Levers: Commitment Pricing
Private Equity NAV % of Fund Size by Vintage Year Group

Pace Yourself

Closed-end private equity fund investors must carefully plan a series of annual commitments to achieve and maintain their target exposure. Here we examine private equity net asset value (NAV) as a percentage of fund size – or how many dollars of NAV are being generated per dollar of commitment. One dollar of commitment does not necessarily yield one dollar of exposure. In fact, in many historical vintages, for every dollar of commitment, about eighty cents of exposure was generated. This has changed in newer vintages, now yielding about $1.10 - $1.20 for every dollar committed.

This change could lead to overallocation challenges, impacting portfolios differently depending on the maturity of the portfolio. In a mature portfolio, the impact could be smaller, as the other more established vintages may help to mute the impact of younger commitments (which will account for a smaller percentage of the portfolio). Younger portfolios, or those that have ramped up commitment pacing, may find themselves with much more exposure than anticipated. This may impact their ability to make new commitments going forward.

Private Equity – a broad term used to describe any fund that offers equity capital to private companies. Includes funds that are buyout, venture capital, and growth equity strategies.


November 30, 2023

Asset Level Liquidity
Dispersion of Holding Periods

Fund Level Liquidity
DPI "J-Curves" by Strategy

Leveling Up: Asset and Fund Liquidity

Liquidity is a fundamental characteristic of the private markets, yet liquidity risk is forgotten more often than not. This week we examine the trade-off between asset level and fund level liquidity. In the first chart we see asset level liquidity by strategy in terms of hold periods and the expected yield. Yield can be a meaningful component of returns and can help reduce liquidity risk for strategies such as private credit. Private equity, on the other hand, shows a longer duration around four years and with no yield showing more liquidity risk at the asset level.

In reality, many investors don’t directly hold assets, but rather invest in funds. The bottom chart examines fund level liquidity in terms of DPI at each fund age. This shows how quickly fund investors receive cash back. Similar to the asset level, we see the duration of private credit has historically been the quickest to hit that 1.0x mark, though at the fund level this duration is much longer than at the asset level. Perhaps more surprising, private equity has historically hit 1.0x around nine years, which isn’t much longer than private credit.

It’s important to understand the liquidity risks of the strategies for thoughtful portfolio management but also to keep in mind what structure you’re investing in, as there are many differences from asset liquidity to fund liquidity.

Private Credit – Any fund that focuses on providing debt capital.

Private Equity – A broad term used to describe any fund that offers equity capital to private companies. Includes funds that are buyout, venture capital, and growth equity strategies.

Private Infrastructure – An investment strategy that invests in physical systems involved in the distribution of people, goods, and resources.

Private Real Estate – Any closed-end fund that primarily invests in non-core real estate, excluding separate accounts and joint ventures.


November 23, 2023

Distribution of Portfolio Returns - 1 Fund Per Year

Distribution of Portfolio Returns - 5 Funds Per Yyear

Diversification: Increasing the Likelihood of Success

Appropriate diversification can play a major role in successful portfolio management. It may help mitigate downside risk that arises from the wide spread of returns among private markets funds. Here we see return distributions of portfolios of varying diversification. The first chart shows the return distribution of portfolios investing in a single fund each year. Even this minimum diversification can help limit downside risk for risker strategies - while retaining upside potential. However, minimal diversification may mean limited probability for any single occurrence of returns, which of course, can pose a challenge for investors with limited selection resources.

As we see in the second chart, increasing portfolio diversification to five funds per vintage year may tighten the portfolio return distribution for each strategy. In addition to narrowing the spread of outcomes, it has the potential to  increase the portfolio return. This does not imply optimal diversification, but rather illustrates the impact of large diversification across equity strategies:  adding slightly more funds per vintage may minimize the downside risk and achieve target returns. While we believe appropriate diversification is optimal for achieving benchmark returns, active manager selection may also increase the ability to drive upside returns of the portfolio.



November 16, 2023

Trailing 3Y Private Equity Fundraising
By Strategy

Private Equity NAVs
]By Strategy

Singing Different Tunes: Fundraising vs. NAV Benchmarks

Measures of industry exposures can provide a valuable reference point for making benchmark relative asset allocation decisions. The first chart shows strategy exposure based on the trailing three years of fundraising. The share of fundraising accruing to venture capital and growth equity have remained relatively consistent over the past decade. When looking at the buyout space, the share of fundraising held by large buyout funds has visibly increased at the expense of SMID buyout funds. This can, in part, be attributed to successful SMID managers graduating into the large buyout category after raising substantially larger funds.

On the other hand, when evaluating the markets on a NAV basis, the data is singing a different tune. There has been a steady increase in venture capital NAV and even more so in growth equity, compared to the past decade. Those two strategies now comprise around 40% of industry benchmarks NAV, up 20-25% from 10 years ago. This is an important trend to consider as investors measure their benchmark relative performance.

Growth Equity – Any private markets fund that focuses on providing growth capital through an equity investment. 

Mega/Large Buyout – Any buyout fund larger than a certain fund size that depends on the vintage year. 

SMID Buyout – Any buyout fund smaller than a certain fund size, dependent on vintage year. 

Venture Capital – Venture Capital incudes any PM fund focused on financing startups, early-stage, late stage, and emerging companies or a combination of multiple investment stages of startups. 


November 9, 2023

Private Equity 10-Year Rolling TWRs

Europe and U.S.: A Decade of Data

We’ve said it before and we’ll say it again. Historically private equity has outperformed across most market cycles – and that is particularly true in the U.S. and Europe. How do today’s investors – especially those newer to the asset class – apply private equity within their global private market portfolio?

Here we’re looking at the annualized 10-year returns of U.S. private equity and European private equity on a rolling basis relative to their public counterparts. Over the last two decades of rolling returns, private markets have outperformed in every instance for European private equity and in all but one instance for U.S. private equity. The European private equity premium over European listed equities has been generally consistent, as well as substantial, at around 1,000 bps of outperformance.

Based on this historical performance, in our view, investors should consider a core exposure to Europe within their overall global private market portfolio.

MSCI Europe Index – The MSCI Europe Index tracks large and mid-cap equity performance across 15 developed market countries in Europe. 

S&P 500 Index – The S&P 500 Index tracks 500 largest companies based on market capitalization of companies listed on NYSE or NASDAQ.

U.S. Private Equity – Any buyout, growth equity, or venture capital fund primarily investing in the United States

Western Europe Private Equity – Any buyout, growth equity, or venture capital fund primarily investing in Western Europe


November 2, 2023

Fund Returns vs. Deal Returns
Return Distributions for Funds & Deals

Art of the Deal

LPs with a “DIY” inclination and a severe allergy to fees have long been enamored with direct investments or co-investments, which offer the prospect of enhanced returns by virtue of their typical (but not always!) fee-free nature. But, do LPs who evaluate direct investments as a side hustle appropriately consider the risks? Here we show the distribution of buyout deal returns is flatter than that of fund returns. This suggests that LPs are correct: carefully selected co-investments have the potential to enhance returns. But, it also suggests much greater downside risk: the risk of loss for deals is nearly 25%, higher than that for funds.

This is data that GPs know well, and they construct their portfolios accordingly. They understand that their portfolio will contain a few money-losing deals, but also that their stakeholders care most about aggregate fund returns rather than individual line-item returns. It can come as more of a shock to the “DIY” LPs who are less accustomed, if at all, to justifying write-offs to their stakeholders. The shock can be more acute if co-investments are not sized appropriately to account for the additional idiosyncratic risk they carry.

Co-investments can be an effective tool for LPs trying to more precisely tailor their underlying exposure and enhance deployment with greater speed and visibility. Those idiosyncratic risks may be brushed aside during bull markets but will rear their ugly heads during periods of volatility. Co-investment tourists that lack a systematic, thoughtful strategy may bear the brunt of the pain.

Fund returns and deal returns are inclusive of all funds and deals in the Hamilton Lane datasets (both industry dataset (funds) and portfolio company dataset (deals)) provided the fund/deal had a performance figure.

Since Inception IRR for each fund and deal respectively where since inception is the beginning of the fund or deal life through Q4 2022 across all vintages.



October 26, 2023

Purchase Price Multiples Distribution
Deal Years 2018 - 2022

Purchase Prices: Going Down?

Perhaps the most common question on most investors' minds is where do purchase prices go next in the context of a persistently higher interest rate environment? This chart shows that things have been ‘up and to the right’ with multiples over the past five years and where those prices have landed. It has been relatively consistent across the U.S. and Western Europe, with the latter having more consistency in the 12-14x range.  No doubt industry mix and quality of company also factors into this equation.

So, where next? Perhaps the ‘new normal’ of higher interest rates for longer will likely create greater downward pressure on what new buyers are willing to pay for assets going forward.



October 19, 2023

Private Markets Fundraising
Trailing 3Y Private Markets Fundraising - By Strategy

Fundraising Shifts: More Subtle than Seismic

Private equity fundraising reclaimed significant market share in North America from 2012 – 2022. In Western Europe, private markets experienced less change over the same period.

Despite a slowdown in 2022, GPs in the U.S. and Europe have generated record fundraising hauls over the trailing three years. Fundraising in both regions nearly tripled over the past decade though and, while the total fundraising pie grew, the share of fundraising in the regions diverged. North America saw the resurgence of the large cap buyout managers and venture capital managers, who were able to raise larger sums off the back of historical outperformance (at least through 2021!). Real estate funds lost market share, as some investors were scarred by their experience during the GFC. The shifts in the composition of the European market were more subtle than seismic, suggesting preferences for investors seeking European exposure have not changed much in the past decade. We think they are unlikely to stay quite as static over the next decade.

Credit – This strategy focuses on providing debt capital. 

Infrastructure – An investment strategy that invests in physical systems involved in the distribution of people, goods, and resources. 

Mega/Large Buyout – Any buyout fund larger than a certain fund size that depends on the vintage year.

Natural Resources – An investment strategy that invests in companies involved in the extraction, refinement, or distribution of natural resources.  

North America –  Any portfolio company that primarily invests in North America.  

Real Estate – Any closed-end fund that primarily invests in non-core real estate, excluding separate accounts and joint ventures. 

SMID Buyout – Any buyout fund smaller than a certain fund size, dependent on vintage year.

VC/Growth – Includes all funds with a strategy of venture capital or growth equity.

Western Europe – Any portfolio company that primarily invests in the European Union 


October 5, 2023

Valuation Multiple Comparisons
Private vs. Public Holding Valuations

Valuations: A Cacophony of Opinions

Market observers spent much of the year handwringing about private market valuations. Valuations have also been the focus of regulators in jurisdictions that are considering expanding investor access to private markets – and rightfully so.

Amid a cacophony of opinions, we ask: “How exactly are private companies being valued relative to their publicly traded sector counterparts?” At the outset of 2022, the typical private company tended to be held at a discount (on an EV/EBITDA basis) to the average public company across most sectors. One glaring exception was the communications services sector, but this is driven by sub-sector makeup – think public telecommunications firms vs. digital advertising and new media businesses in the private markets. In addition to holding valuation cushion, the long term and actively managed approach of PE may also directly impact better operating performance in private companies relative to the public market ownership model. Throughout the course of 2022, this valuation gap narrowed and by year-end, valuations for most sectors began to converge. We believe this trend suggests that private market valuations, in general, are fair. However, it’s worth noting that a sharp rebound in public markets could once again make private markets look cheap on a relative basis.



September 28, 2023

Cumulative Returns During a Crisis
Buyout vs. Global Equities Cumulative Returns

Crisis Selling

In times of financial crisis, the public equity markets generally sell first and ask questions later. As a result, good companies, with lower risk to the new economic environment, can become oversold along with higher risk companies.

Private equity historically holds assets through choppy macro periods and downturns, thus typically isn’t a forced seller when markets correct. And because GPs know that they will likely ride through an entire economic cycle with their long-term equity positions, they tend to focus on buying companies that can make it through a downturn.

These charts show PE Buyout valuations outperformance relative to public equity during crisis selling. The question for the current market is, “How far will the global stock markets bounce anotend can its return surpass that of private equities?” Regardless, on a risk -adjusted basis, where would you have wanted your capital for the last two years?

MSCI World Index – The MSCI World Index tracks large and mid-cap equity performance in developed market countries. 

TWR – Time weighted return 

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