PE Performance Matches the Hype

Private equity has historically outperformed the S&P 500, but critics often argue that the advantage disappears once fees are taken into account. In other words, it’s a narrow edge that might not justify the risk.

Over the past year, however, private equity firms have been doing their darndest to remove risk from their equations — and the result is reflected in new performance data from Thomson Financial (download after the jump).

Specifically, it’s reflected in the short-term buyout performance. One-year performance for buyout firms leaped from 19.4% to 24.5% between the end of Q3 2006 and the end of Q4 2006. Three and five-year performance also experienced increases, to 14.6% and 10.1%, respectively.

Ten and 20-year performance dipped just slightly to 8.5% and 12.9%, but has remained relatively consistent for the past several years.

You can download the data here: PerformanceStats.xls. My only caveat would be to mostly ignore the size subsets (i.e., “small buyouts,” etc.). Thomson — who just happens to publish peHUB — is stuck a bit in the past, with “mega” funds still defined as anything above $1 billion…