Performance of Private Equity

This chapter gives an overview on the performance of private equity, the different performance measurement methods, as well as evidence from the recent literature and a database with current performance numbers. First, the chapter explains why the calculation of time-weighted returns is extremely difficult for private equity funds. As a result, alternative performance measures have been developed, which are based on the observable cash flows from a fund investor. On this basis, the internal rate of return (IRR), the modified IRR, and the money multiple, as well as the public market equivalent are introduced. Second, methodological as well as operational problems associated with these methods, the adjustment for risk, and the challenge in obtaining reliable performance data are discussed. Finally, the chapter gives an overview on the empirical findings in the literature on private equity performance, and presents recent performance numbers for three subasset classes of private equity.