The European investment landscape has witnessed significant changes over the past two decades, with private equity emerging as a formidable alternative to traditional public equity investments. As institutional investors and high-net-worth individuals seek to diversify their portfolios and maximise returns, the question of whether private equity outperforms public markets has become increasingly relevant. However, comparing these two asset classes presents unique challenges due to differences in liquidity, valuation methods, and fee structures.

This analysis used two broad European indices from MSCI to represent the public equity asset class and the Burgiss Europe Private Equity Funds Index covering over a thousand funds worth more than USD 1 trillion to represent a well-diversified PE portfolio. The analysis is conducted over the entire period as well as over the four sub-periods, which are of unique economic relevance and impact. Various performance metrics are applied, including holding period yield, compound annual growth rate, and risk-adjusted measures such as Sharpe and Sortino ratios.

The results showed that private equity consistently outperformed public equities in terms of absolute and risk-adjusted returns over all periods analysed. The Burgiss Private Equity Funds Index generated a substantially higher holding period yield compared to the two public equity indices. Private equity also exhibited lower observed volatility, generally lower maximum drawdowns and shorter drawdown durations. However, this study also highlights important limitations, such as methodological challenges that arise in comparing the performance of private and public equity and the idealised nature of index-level data, which may not reflect the actual experience of individual investors. The apparent outperformance and lower volatility may be partly attributed to such methodological challenges in performance measurement, including less frequent valuations and potential smoothing of returns. The results further suggest that private equity can be a valuable component of diversified investment portfolios, especially for long-term investors. However, its unique features, such as its illiquidity and complex fee structures, need particular attention.