Understanding Private Fund Performance Analysis

This research article examines the net performance of 6,000 private funds from 1980 to 2022, encompassing various asset classes including buyout, venture capital, credit, and real estate. It identifies significant variations in lifetime performance across these funds, emphasizing that performance relative to public benchmarks is highly dependent on the benchmark selection. The study utilizes data from the MSCI Private Capital Universe, which is noted for its comprehensive and high-quality data. The findings indicate that private funds have historically provided diversification benefits to public investors, although the degree of performance premium over public investments varies based on the chosen benchmark. The article discusses the implications of fair value accounting on performance correlations and highlights the challenges in measuring private fund performance due to their illiquid nature. The structure of private funds and their operational mechanisms are also detailed, providing insights into how general partners manage investments and distribute returns to limited partners.