For an investor, private equity offers an alternative to the public markets; however, with the requirement for large amounts of capital to be locked up for long periods of time, it is important for LPs to monitor the performance of this asset class in comparison to the more liquid investments in public equity.
Using cash-flow data for over 2,100 private equity funds, Preqin has been able to generate horizon returns over the one-, three-, five- and ten-year periods for the private equity asset class and compare these returns to the S&P 500.
The analysis shows that private equity returns as of June 2012 stood at 5.5% over the one-year period, and 16.3%, 4.7% and 12.3% over three, five and ten years respectively. In comparison, the S&P 500 is also in the black over the one-year period, showing very similar returns to those generated by private equity, with a return of 5.4%. Both indices are also very similar over the three-year period, with the S&P slightly outperforming at 16.4% compared to 16.3% for private equity.
However, over the longer periods of five and ten years, there is a much clearer distinction between the performance of the asset classes. With a return of 4.7% compared to 0.2%, private equity outperforms the S&P 500 over the five-year period, and also does so over the ten-year period, with a return of 12.3% compared to 5.3%.