Vanguard examines private equity returns and the drivers behind their historical outperformance relative to public markets, focusing on leverage, sector exposure, and selection effects. The paper questions how much of the excess return is structural versus cyclical, suggesting that once adjusted for risk and leverage, the advantage may be narrower than commonly perceived.
The Case For Private Equity At Vanguard
Vanguard
Fran Kinniry
Research
16 Pages
Key Takeaways
Outperformance Adjusted Lower: Private equity has outperformed public equities by ~3% annually, but much of this shrinks after adjusting for leverage and sector exposure.
Leverage Contribution High: Leverage accounts for a significant portion of returns, with buyout deals often using 60–70% debt financing structures.
Dispersion Remains Wide: Top quartile funds outperform bottom quartile by over 10% annually, highlighting manager selection as a critical driver.
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