Insights Chart of the Week

Private Equity Outcomes: Europe’s Subtle Charms

U.S. private equity funds have a reputation for outperforming when compared to Europe. This week, we examined the performance of North American and European buyout deals. At first glance, the median performance is remarkably similar, with North America showing a slight edge in returns: 24% compared to 22%. On average, North American buyout funds offered higher outcomes.

However, North American deals come with a wider dispersion of outcomes, presenting the potential for exceptional highs but also significant lows. In contrast, European buyout deals display a narrower dispersion, reflecting more consistent and predictable performance trends. The difference: Europe’s median dispersion was 26% compared to 32% in North America, using internal rate of return (IRR) as a measurement. 

The benefits of global diversification 

This chart shows that European PE buyout funds may have the often overlooked benefit of more consistent results. It’s relevant as European investors now have more opportunities to invest closer to home, thanks to the introduction of European Long-Term Investment Funds (ELTIFs). Designed for non-professional investors, these funds allow them to support and benefit from their regional economy. 

The findings also highlight the importance of global diversification in private market portfolios, balancing risks and opportunities across regions.

Charting the Growth of $1 in Public vs. Private Markets

This week, we are measuring the growth of $1 invested in various markets over the last 10 years. Notice that even with the recent underperformance, private equity has given investors much better returns over that period. The chart also shows what a difference the public comparable benchmark you use makes. The S&P 500, one of the world’s best performing indexes, is getting closer to private equity returns, now only about 5% lower. The MSCI is not close and, in fact, has returns that are comparable to what you are getting from private credit and real estate, two strategies with far different risk/return profiles compared to equity.

Learn more about our 2025 Market Overview.

Are You a Private Markets Expert? More Advisors Say “Yes.”

The rising interest in private markets among private wealth investors is pushing advisors to sharpen their expertise. According to the Hamilton Lane Global Private Wealth Survey, 63% of advisors now rate themselves as “advanced” in private markets—up from 55% last year—showing greater confidence in discussing trends, products and strategies.

What’s behind the trend? The increasing availability of evergreen funds which offer more flexibility and liquidity than traditional funds is making private markets more accessible to private wealth investors. Mastering this asset class not only expands investment options but also creates valuable diversification opportunities for existing clients and prospective investors. As one U.S. RIA put it, “Clients expect us to access investment strategies they can’t just buy on their own.”

10+ Years of Strong Sector Returns

This week, we look at deal-level returns by sector from our 2025 Market Overview, highlighting strong historical returns and the areas where those returns have been generated over the last 11 years. All the sectors make money, and most make a lot of money over the entire period. It is interesting that the industrial sector has become strong recently. Not surprisingly, information technology has been one of the stronger performers across the entire time frame.

Here's one blindingly obvious point: Shift your eyes to the dark blue stripe across the chart and the median returns for all deals shown across that stripe. You’ve probably heard from your trusted sources that returns in private markets have to come down. You’ve probably also been told they have been coming down as the asset class has gotten bigger.

In 2010, they were 20.4%. In 2020, they were 21.7%. They haven’t gone down. That myth about diminishing returns? Yes, we see that 2021 is quite a bit lower but, again, we’ll argue that it is too soon to make a judgment about where that vintage will finish and, as we all know, one vintage does not a trend make.

Why the Infrastructure Fundraising Cool Off?

In recent years, infrastructure has attracted more capital than ever before, with investors significantly increasing their allocations or entering the space for the first time. Yet, after reaching record fundraising highs in 2022, infrastructure fundraising slowed in 2023 and continued to decline 2024. But with investor interest as strong as ever, why is fundraising cooling off?

The recent dip in infrastructure fundraising following successive years of growth is largely due to persistently lower distribution ratios - new capital has outpaced managers’ ability to return funds to investors. Much of the capital raised leading up to the peak of 2022 is still deployed and hasn’t yet been returned to LPs, preventing reinvestment and slowing the long-term fundraising cycle.

Additionally, the completion of a few large managers’ global fundraises in 2022 and 2023 has had a residual effect on the market. In 2023 just five funds raised a total of $80 billion, making up two out of every three dollars raised that year. This trend of disproportionately concentrated capital in the largest infrastructure funds means that fundraising peaks when these funds are actively raising and correspondingly dips when they’re not in market.

Stark Contrasts: Private Equity vs. Public Equity Performance

From January 2018 through June 2024, European private equities outperformed public equities by a margin of 106%. In North America during the same period, the outperformance margin was 25%.

The key drivers? First, Europe’s public markets delivered lackluster returns. This contrasts with North American equities which surged on the back of record valuations. Second, European private equity demonstrated resilience, with returns (almost) keeping pace with North America’s.

This puts a spotlight on the fact that investors have choices when they’re striving for a geographically diversified portfolio.

New private market opportunities for EU investors

European investors can look in their own backyard for similar potential outperformance. New ELTIFs (European Long Term Investment Funds) are making the private markets more accessible to nonprofessional investors across the EU. ELTIFs may allow investors to access the private markets with low minimum investments, immediate capital deployment and quarterly liquidity.

Venture Capital & Growth Drive Private Equity’s Historic Outperformance

This week’s chart highlights the 10-year rolling performance of private equity strategies and the MSCI World Index, showcasing how venture capital and growth equity funds have produced stellar returns for much of the past decade. While there has been considerable focus on post-2021 venture performance, private markets are a long-term asset class. Despite recent declines, both venture capital and growth equity continue to outpace other strategies and demonstrate the potential to consistently drive outsized returns relative to public equities over the long term. Regardless of macro volatility and market cycles, venture and growth continue to generate premium historical returns that investors cannot access from listed equities.

Private equity portfolios without venture and growth strategies may experience higher tracking errors to private equity benchmarks. While venture capital’s greater dispersion of returns across market cycles offers substantial long-term return potential, we underscore the importance of prudent portfolio construction and best-in-class manager selection for LPs to secure the best potential risk-adjusted returns for the asset class.

Fund Size ≠ Average Returns

Taking the crown in our Top of the Charts series is Fund Size ≠ Average Returns. In this chart, we examine the differences in dispersion of small-cap buyout, middle-market buyout and mega/large buyout. Interestingly, the median IRRs do not differ drastically between the three fund sizes, all hovering in the mid-teens. This suggests there is not a strong correlation between fund size and median returns. 

Top-quartile, middle-market managers, however, have historically posted stronger returns than their peers in the mega/large space. While top-quartile returns are high, the dispersion of returns for middle-market buyout also remains wide, showing the upside potential and downside risk. That dynamic stands in contrast to mega/large funds, which exhibit a tighter dispersion. This relationship is even further pronounced when looking at small-cap buyout relative to the other buyout buckets. Strategic planning and prudent manager selection remain crucial to targeting outperformance, especially in small-cap and middle-market investing where the wider dispersion of outcomes can introduce more downside portfolio risk considerations.

Current Rate of Distributions vs. Pre-2021

Placing 2nd in our Top of the Charts year-in-review is The Current Rate of Distributions vs. Pre-2021. And for good reason. We focus a lot on risk and return, but liquidity is another major consideration when thoughtfully constructing private market portfolios. In this chart, we observe the rate of distribution across all private markets as the total amount of distributions as a percentage of NAV. Also shown are the annual amounts to illustrate the magnitude of distributions per year, demonstrating distribution activity in two ways. Investors experienced diminished distribution activity in 2023 compared to the record amounts in 2021 and 2022, and it is unlikely to see distributions of that magnitude based on 1H 2024.

Distribution rates, however, show some evidence of recovery from the all-time lows they saw in 2023, which was the lowest annualized rate of distribution over the past 10 years. This can be attributed to minimal exit activity during that year, but it appears to have begun picking up traction in the start of 2024. Still, the distribution pacing declines are more a function of NAV growth, rather than a massive decline in absolute distributions, as distributions continue to be on pace or exceed those of pre-2021 levels.

Sourcing Outsized Returns

This week we’re focusing on interquartile range of funds’ IRR that are bucketed into three implementation strategies across private equity.

The lowest interquartile range in returns is in secondary funds, highlighting its potential for relatively lower risk implied by lower dispersion in returns. More diversification and robust investment selection in co-investment funds are particularly important to be prudent about and are implied by the highest interquartile range vs. primaries or secondaries.

It is important to note that this is not considering the top and bottom deciles of the dispersion. Although the interquartile range for co-investment funds is higher, the top decile could also be higher, implying both higher expected return and risk. Co-investments also typically show a longer tail on the right of their return distribution, emphasizing the potential for strong, outsized returns if investors have capable sourcing, investment selection and risk management skills.

How Long Should You Stay Invested?

Understanding the duration of an investment can be helpful in assessing the illiquidity of closed-end primary funds. In this week’s analysis, we calculate “implied duration” for different private markets strategies. In other words, how much time, on average, is capital at work for a private markets fund?

Infrastructure and credit origination funds demonstrate shorter implied durations – often less than four years. This expedited recuperation period can indicate lower liquidity risk exposures for investors, as capital is returned more swiftly. In contrast, higher risk and returning strategies such as venture capital see an extended duration as their underlying assets take longer to generate and return value.

Understanding the duration of illiquid assets is vital for making proactive portfolio changes that align with an investor’s strategic goals and capital needs. This nuanced approach to portfolio construction is important for LPs seeking to balance their portfolio’s return, risk and liquidity across private market investments.