Private Equity Funds: The Best Opportunity

Thursday - February 27, 2014

Taking an opportunity to explore advantageous investment strategies available to institutional investors, let’s take a look at private equity.  Reviewing ten-year returns through June 2012, from 146 U.S. public pension funds with assets greater than $1 billion, the Private Equity Growth Capital Council — the leading U.S. private equity industry trade group — found that the average annual return for private equity portfolios was higher than fixed income and public equity.

In addition to besting stocks and bonds, the Defined Contribution Institutional Investment Association, a trade group for pension funds, noted that the average private equity portfolio has outdone both hedge funds and real assets. This latter category covers investment in commodities like precious metals and fossil fuels, and generated only 9.5% annually.

And after taking advantage of buoyant markets to sell hundreds of billions of dollars of investments, private equity firms have returned a record amount of funds to their investors in 2013. Last year will be remembered for the gains earned by private equity firms and the individuals that invest in them.

Investors in private equity funds are expected to receive more than 2012’s record of $115 billion. In the first half of 2013, private-equity firms returned $60.8 billion to investors. Sales gave private equity firms a boost as they asked investors to commit to new funds. Firms raised buyout funds totaling $143.5 billion in 2013, the highest level since 2008. 

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