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Private equity appears likely to continue delivering a substantial return premium over public equities, despite a dampened absolute return outlook.

In recent years, private equity’s increasing stock of dry powder has sparked heightened competition for deals. Together with valuations that remain close to historical highs, this environment has dampened absolute return expectations for PE compared to prior decades. On a relative basis, however, we believe PE will continue to generate returns significantly above the public markets.
This outlook is in line with widespread historical data that points to PE’s consistent outperformance over the long-term. As shown in Exhibit 1, buyout funds have outperformed public equities in 19 of the last 20 years. Top-quartile PE funds consistently generated double the performance of public equities or higher.1

Exhibit 1: Pooled Returns by Vintage Yearfigure-1-buyout-returns-versus-public-equities

Source: Hamilton Lane 2020 Overview, Bloomberg (October 2019). For illustrative purposes only.
Past performance is not indicative of future returns.

This confidence in the asset class is echoed by institutional investor sentiment. A recent survey of institutional investors by Coller Capital found that 80% of Limited Partners (“LPs”) expect to achieve annual net returns of more than 11% from their PE portfolios over the next 3-5 years, while a bullish contingent representing 15% of LPs surveyed are projecting net PE returns of over 16%.2

In comparison, many institutions are publishing long-term capital market assumptions (“LT CMAs”) that forecast public equity returns in the low single digits. J.P.Morgan’s 2020 LT CMAs, which help inform the firm’s asset allocation models, are one example:3

  • 6.5% return on U.S. small cap equities
  • 5.6% return on U.S. large cap equities
  • 5.4% return for a U.S. dollar-based traditional 60/40% portfolio

Given the likelihood of a near- to mid-term market correction, it is easy to imagine that public equity returns could trend even lower. GMO’s latest 7-year asset class forecast anticipates a recession and consequently negative returns for the public markets: a negative 3.6% return for U.S. large caps and a negative 1.0% return for U.S. small caps.4

This leaves private equity returns – even at the aforementioned 11% net IRR – with a healthy spread of outperformance above the public markets. This analysis is based on the average private equity return outlook. Given the large performance spread between top- and bottom-quartile private equity managers, top-quartile PE funds could outperform public markets, and to a much greater degree than the average-performing private equity fund, making a significant difference in investors’ ability to achieve their long-term financial goals.


(1) Source: Hamilton Lane 2020 Overview.
(2) Source: Coller Capital Global PE Barometer Winter 2019-20.
(3) Source: J.P. Morgan Asset Management, estimates as of September 30, 2019.
(4) Source: GMO, as of September 30, 2019.


This material is provided for informational purposes only and is not intended as, and may not be relied on in any manner as legal, tax or investment advice, a recommendation, or as an offer to sell, a solicitation of an offer to purchase or a recommendation of any interest in any fund or security offered by Institutional Capital Network, Inc. or its affiliates (together “iCapital Network”). Past performance is not indicative of future results. Alternative investments are complex, speculative investment vehicles and are not suitable for all investors. An investment in an alternative investment entails a high degree of risk and no assurance can be given that any alternative investment fund’s investment objectives will be achieved or that investors will receive a return of their capital. The information contained herein is subject to change and is also incomplete. This industry information and its importance is an opinion only and should not be relied upon as the only important information available. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed, and iCapital Network assumes no liability for the information provided.

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Nick Veronis

Nick Veronis

Nick is Co-Founder and one of the Managing Partners of iCapital, where he is Head of Portfolio Management. Nick spent 11 years at Veronis Suhler Stevenson (VSS), a middle market private equity firm where he was a Managing Director responsible for originating and structuring investment opportunities. He holds a BA in economics from Trinity College and FINRA Series 7, 79, and 63 licenses. See Full Bio.

Tatiana Esipovich

Tatiana Esipovich

Tatiana Esipovich is a Vice President on the Research & Due Diligence team. Prior to joining iCapital in 2017, Tatiana worked at DB Private Equity (part of Deutsche Asset Management) in New York. Tatiana started her career at Deutsche Bank in London. She received an MA in Modern Languages from Oxford University.