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ICYMI: Experts Highlight Private Equity’s Outsized Returns and Diversification Value Before SEC

Last week, the Securities and Exchange Commission (SEC) Asset Management Advisory Committee held a Private Investments Subcommittee meeting examining the private equity industry to determine whether private investments should be recommended to the general public. Two industry experts, Noel O’Neill of Cambridge Associates and Bryan Jenkins of Hamilton Lane, gave presentations examining how private equity has consistently delivered superior returns for investors over long-term horizons and reduces risk for investors in economic downturns.

Bryan Jenkins of Hamilton Lane began the session by informing the committee that, “if you had begun investing in private equity in 2011, you would have achieved a 300-point basis premium to the S&P 500.” The following slide from Jenkins’ presentation shows that private equity has consistently outperformed public equities over a 10-year time horizon dating back to 2004.

 

 

 

 

 

 

 

 

 

 

 

 

 

Click here to view Bryan Jenkins’ full presentation.

Noel O’Neill, President of Cambridge Associates, examined the return of private investments relative to public markets. The first slide in O’Neill’s presentation, copied below, shows that private equity has consistently delivered higher annualized returns over 30-, 25-, 20-, 15-, 10-, 5 and 3-year time horizons relative to both the S&P 500 and the Russell 3000. O’Neil specifically noted, “the longer-term premium for investing in private equity is quite significant over public equity markets.”

 

 

 

 

 

 

 

 

 

 

 

 

 

O’Neill also discussed how private equity investments provide diversification value. The following slide from O’Neill’s presentation shows that small and mid-cap private equity funds have low correlation with the performance of public markets. Because private equity investments do not move in lock step with public markets, they are an important tool for investors looking to hedge risk during economic downturns. According to O’Neill, “the broad point that [this slide] makes is that there is more diversification value as you get to smaller and more focused funds.”

 

 

 

 

 

 

 

 

 

 

 

 

 

Click here to view Noel O’Neill’s full presentation

Earlier this year, the American Investment Council released its annual Public Pension Study, which examines the investments and returns of America’s largest public pension funds. Private equity was once again the best performing asset class for public pensions, delivering a median annualized return of 13.7 percent over a 10-year period.

Click here to watch a video of the entire SEC Asset Management Advisory Committee meeting.