Verdad argues private equity’s post 2010 underperformance stems less from leverage and more from inflated entry valuations fueled by institutional capital inflows. The paper challenges the industry’s diversification narrative, noting deals above 10x EBITDA historically produced sub 5% IRRs and frequently destroyed capital.
Making Private Equity Great Again
Verdad
Research
6 Pages
Key Takeaways
Valuation Compression Risk: Private equity returned 14.4% annually from 1990 to 2010 versus 8.1% for the S&P 500, but underperformed public markets after 2010.
Capital Flooding Effects: Annual private equity fundraising climbed from $186 billion between 1996 and 2010 to $295 billion from 2011 through 2016, pushing purchase multiples materially higher.
Expensive Buyouts Struggle: More than 50% of leveraged deals completed above 10x EBITDA lost money historically, generating barely 1.0x money multiples and IRRs below 5%.
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