The performance of the private equity industry is often the focus of controversial discussions. It is a challenge for both researchers and investors to analyze the historical performance of private equity funds in an overall market view.

The methods used to study equity markets are not applicable to private equity investing because of the lack of active and transparent markets for the private equity asset class. In addition, fund managers are not required to publish their performance or cash flows, and information from specialized data providers is often only available in aggregated or anonymized form, making it difficult to verify and compare. Performance data on individual funds is often incomplete in mainstream private equity databases, available with varying coverage of the market, and cash flow information that allows plausibility of performance is rarely provided.

Studies based on data from Limited Partners

For this reason, researchers are increasingly choosing the approach of collecting and analyzing cash flow data directly from one or more institutional investors (limited partners). The reliability of this data is justified by the fact that the information regularly serves as the basis for the Limited Partners' own investments. Most of these studies find that the private equity asset class significantly outperforms public equity benchmarks, which are typically represented by equity markets.

In their highly cited study, Ljungqvist and Richardson (2003) show excess returns of private equity funds relative to the S&P 500 stock index between 5 and 8 percentage points per year for the period from 1981 to 2001. Robinson and Sensoy (2011), using data from a large institutional limited partner, analyze the period from 1984 to 2010 and find that, on average, private equity funds outperform the S&P 500 over the life of the fund by about 18 percent (net of fees) for the same period.