A UK think-tank study says overall
private equity (PE) returns over the past 30 years have been
disappointing and raise questions about investor’s sophistication
when choosing to invest in leveraged buy-outs.
The findings, by former Morgan
Stanley managing director Peter Morris, urged for more transparency
around private equity performance.
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The study, commissioned by UK
economic think-tank Centre for the Study of Financial Innovation,
also called into question whether private equity firms deserve to
charge high fees.
Research by consultancy Scorpio
Partnership found private equity is viewed as a major investment
opportunity for family offices in the next 2 to 3 years.
Fifty-seven% of family offices surveyed said they were considering
boosting their exposure to private equity this year.
Morris’s report, Private
Equity, Public Loss, quoted the University of Chicago’s Steven
Kaplan and Massachusetts Institute of Technology’s Antoinette
Schoar who found the average buy-out fund, net of fees,
underperformed the S&P 500 between 1980 and 2001.
The median buy-out fund delivered
83% of the S&P 500 return; the mean 93%.
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By GlobalData
Private equity
alternatives
Writing in PBI in March,
Jeffrey Hooke, managing director of valuation firm Hooke
Associates, said synthetic public stock portfolios may be a
reasonable alternative going forward.
“Even PE executives admit that
anyone applying 50% margin to the S&P 500 index can beat
buy-out returns. However, many institutions can’t buy stocks on
margin, or they are reluctant to purchase leveraged exchange-traded
funds,” Hooke said.
“It may be up to private bankers
(and those managing publicly-traded equities) to develop tools for
clients to mirror PE investment attributes without the high
fees.”
Other findings called into question
fee structures, which may remove all the gains attributable to
skill.
The British Private Equity and Venture Capital Association was
unavailable for comment.
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