ABSTRACT
This chapter analyzes research by finance economists, which shows that the overall performance of Private Equity (PE) funds has been declining. While PE buyout funds once beat the S&P 500, the median buyout fund has more or less matched the performance of the stock market since 2006. Buyout fund returns have exceeded those from public markets in almost all vintage years before 2006. Since 2006, buyout fund performance has been roughly equal to those of public markets. Academic studies suggest that most investors in PE buyout funds will find the superior performance PE firms promise elusive. Moreover, while the "strategics" benefit from investment-grade credit ratings that lower the cost of debt, PE firms face worsening credit conditions and weaker bank lending in light of new guidance set by bank regulators. The chapter explains the different ways in which PE returns are measured and why some are more appropriate than others.
