Private equity (PE) often claims the financial crown of outperformance. But I am referring to that other, now infamous, Latin word for crown — corona — the shape of which lends its name to the current coronavirus pandemic. So how will it affect PE?
PE investing is about absolute return, not outperformance, in my experience. Survey results referenced by Paul Gompers, Steven N. Kaplan, and Vladimir Mukharlyamov back this up. The three observe, with some surprise:
“PE investors believe that their LPs [limited partners] are most focused on absolute performance rather than relative performance or alphas. . . . Such investments carry significant equity risk, suggesting that equity-based benchmarks like public market equivalents (PMEs) are appropriate.”
I would rephrase that to “should be appropriate.”
Continue reading on the Enterprising Investor Blog of the CFA Institute where this post was originally published.