Yesterday’s edition was such a hit with readers that I thought I’d publish some more data today—this time digging into PE returns.
There’s no true benchmark for the private markets, as closely-held, fair value performance data and illiquid, closed-end fund structures make it pretty much impossible to craft something equivalent to the Nasdaq or S&P 500. But there’s still data providers that publish numbers that GPs and LPs use to compare funds and performance.
For this newsletter, I used data from eFront, the private equity software provider owned by BlackRock. eFront publishes benchmark reports based on the cash flow information from 8,000 unique private market funds. Their data shows some interesting trends in how funds are delivering returns to limited partners—and whether they’re having success doing it.
Take a look at how the COVID-induced private market boom put fat distributions into the hands of limited partners sooner than some of the earlier vintages:
In today’s market, when it’s taking longer for LPs to get distributions, I would imagine that funds with a vintage of 2020 or later won’t peak until much later. I suppose we have to wait a few years until it shows up in the data to really know.
As for performance, investing in the private markets is extraordinarily risky—with LPs either racking up exceptional returns or exceptional losses. The key is choosing the right managers, which is why it’s so competitive to get access to top-tier funds. Here’s a look at the divergence over the last three decades:
What’s really interesting from this data is how top-quartile returns fell to earth after the collapse of the Dotcom Bubble. And, looking at the past decade, even the worst-performing funds posted smaller-than-normal losses in 2016 and 2017, likely thanks to the low-interest-rate era of 2020 and 2021.
A special thanks to Fortune graphics director Nick Rapp, who spent hours in back-and-forth with me yesterday building these charts after my initial sorry attempt ended poorly.
See you tomorrow,
Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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