A 25-year analysis

By Nils Rode, Chief Investment Officer, and Verity Howells, Investment Research Manager Private Equity, at Schroders Capital

• Private equity consistently outperformed listed markets during the largest market crises of the past 25 years
• During the past 25 years, the outperformance from private markets was twice as high during crises relative to undisturbed periods
• Distributions, a key concern for LPs, became less volatile during recent crises
• Structural, fundamental and technical factors explain private equity’s outperformance
• To navigate future crises, investors should consider diversifying within private equity and beware of boom-bust cycles

Over the past four years, financial markets have been subject to a series of shocks that have had far-reaching implications. From the global pandemic and subsequent shutdown of major economies to recent geopolitical tensions, the market environment has been rife with uncertainty. Adding to the complexity, record inflation and one of the fastest rate-hiking cycles in four decades have further challenged investors and businesses.

Amidst this turbulence, private equity still managed to deliver impressive absolute and relative performance.

Has private equity simply been fortunate during this recent period, or has its success extended to other crises? We have undertaken a broader analysis looking at the past 25 years. This period saw five major financial crises: the Dotcom Crash, the Global Financial Crisis (GFC), the Eurozone Crisis, the COVID-19 Outbreak, and the Return of Inflation.

During each of these crises, private equity outperformed public markets.

In this paper, we look in detail at each of the five financial crises outlined above. As well as exploring private equity’s performance compared to public markets, we also dig into volatility, distributions to limited partners, and the different types of private equity strategies that fared best and worst in each instance.

Our key findings are that private equity has consistently demonstrated resilience and superior performance during the greatest market disruptions of the last 25 years. Despite challenges such as high interest rates, inflation, and economic volatility, private equity outperformed public markets and experienced smaller drawdowns, with distributions becoming less volatile over time.

A closer look at which private equity strategies performed best during crises underscores the importance of diversification within private equity. This analysis highlights private equity’s potential as a robust component of investment portfolios, especially during periods of economic uncertainty.

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