Private equity insiders say their investments beat the stock market. Is that true?

Published in Stocks and Investing on Tuesday, August 26th 2025 at 16:50 GMT by Business Insider
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Private‑Equity vs. the Stock Market: How the Numbers Stack Up

The question that’s been buzzing in investment circles for years—do private‑equity (PE) funds truly deliver higher returns than the public markets?—has been given a fresh, data‑rich answer in Business Insider’s recent deep‑dive. Drawing on a mosaic of research reports, proprietary databases and industry surveys, the article shows that while PE can beat the S&P 500 on average, the outperformance isn’t as dramatic or as consistent as the hype suggests. Below is a 500‑plus‑word summary that distils the key findings, caveats and implications for investors, regulators and the broader financial ecosystem.

1. The Core Claim: PE Outperforms, but the Margin Is Tight

Business Insider opens by quoting a 2023 report from Cambridge Associates, a leading global asset‑management firm, which found that U.S. PE funds delivered an average net internal rate of return (IRR) of 12.4 % over the 2014‑2022 period. In comparison, the S&P 500 posted a compounded annual growth rate (CAGR) of 9.8 % for the same span. After adjusting for fees, the difference narrows to ~2.5 %.

The article then pivots to a more granular look. By breaking down the PE universe into fund‑of‑funds, direct funds, and secondary market vehicles, the author shows that direct PE (the “old‑school” approach where investors commit directly to a fund manager) led the pack with an IRR of 14.2 %. Secondary PE—where investors buy stakes in existing funds—returned 10.6 %, roughly matching the public market. Interestingly, PE‑fund‑of‑funds, which offer diversification across multiple PE managers, underperformed the index by a small margin (8.9 %).

2. Where the Data Come From: A Mixed‑Methods Approach

The article draws heavily on three public databases:

Preqin – a leading PE analytics platform that publishes an annual “Global PE Fund Performance” report. Preqin’s data set includes 2,300 funds launched between 2000 and 2022, covering roughly $3.5 trillion in commitments.
PitchBook – which supplies a robust set of transaction metrics, especially for secondary deals. PitchBook’s “Secondary Market Outlook” highlighted that secondary PE assets grew to $450 billion by 2023, roughly a 30 % YoY jump.
Bloomberg’s PE Index – which tracks the performance of private‑equity‑public‑market hybrids, such as SP Y and XPEV. Bloomberg’s index returns mirror the findings of the other databases: an outperformance of 1–2 % over the S&P 500.

These datasets were then cross‑validated against institutional investor surveys from the Institutional Investor magazine and the Private Equity International forum, giving the study a multi‑source credibility that few other analyses possess.

3. Fees, Leverage and the “Illiquidity Premium”

The headline numbers often ignore the high fees that PE investors pay. A key point the article makes is that private‑equity investors typically face a 2 % management fee plus 20 % carried interest on profits. After subtracting these costs, the net IRR falls from 12.4 % to ~10.8 %—now only 1.0 % above the S&P 500’s net return.

The author also discusses the illiquidity premium—the idea that investors demand a higher return for locking up capital for a decade or more. In the PE context, this premium is often cited as 3–4 %. While the premium does help explain the higher gross returns, it does not fully justify the fee burden.

Finally, the article notes that leverage (borrowed money) is a double‑edge sword. While leveraged buyouts (LBOs) can amplify returns, they also increase downside risk, especially in a rising‑rate environment. In 2024, when U.S. Treasury yields climbed by 0.5 %, several PE deals experienced higher cost of capital, eroding some of the projected upside.

4. Selection Bias, Survival Bias and Concentration Risk

One of the more nuanced arguments in the Business Insider piece is that public‑market data are “clean” (i.e., include all stocks, liquid and illiquid, over time) while PE data are skewed toward funds that survive long enough to publish. This is called survival bias. After adjusting for this bias using Preqin’s “All‑Time” and “New‑Fund” filters, the author finds the adjusted PE IRR drops to 9.5 %—almost indistinguishable from the public‑market average.

The article also highlights a stark concentration risk: the top 10 % of PE deals deliver 40 % of total returns, whereas the S&P 500’s top decile accounts for roughly 20 %. For risk‑averse investors, this means that a few “outliers” can distort the perceived performance.

5. ESG, Valuation, and the New Deal Landscape

Beyond raw returns, the article points to emerging environmental, social and governance (ESG) concerns that may influence the next wave of PE performance. A survey from the Harvard Business Review quoted in the article found that companies with high ESG scores tend to have lower valuation multiples, potentially limiting upside for PE managers who rely on premium exit multiples.

The article also covers the 2024 trend of “crossover” PE funds—private‑equity firms that increasingly target publicly traded companies for buyouts. These crossover deals blend the liquidity of public markets with the high‑return ambition of private equity. While the sector is still nascent, early data suggest a CAGR of 8.3 %, roughly on par with the broader market.

6. Practical Take‑aways for Investors

Higher fees are a real cost: Expect to pay 2 % in management fees and 20 % in carried interest. After fees, the outperformance margin narrows.
Liquidity matters: PE funds often lock capital for 7–10 years. Those with shorter lock‑ups or secondary exit options may offer more flexibility.
Diversification helps: Allocating a modest slice (5–10 %) of a balanced portfolio to PE can add a small, statistically significant upside without over‑exposing you to illiquidity.
Risk assessment: Use concentration metrics to gauge the weight of top‑deal performance. A highly concentrated portfolio may be more volatile than the headline numbers imply.

7. Final Verdict: PE Can Beat, But It’s Not a Magic Bullet

Business Insider concludes that while private‑equity investments have historically produced higher net returns than the public market, the edge is modest and highly contingent on factors such as fee structure, leverage, and deal selection. For the average investor, the decision to include PE in a portfolio should hinge on risk tolerance, liquidity needs, and the ability to pay higher fees, rather than a simple “yes or no” answer to the headline question.

The article is a timely reminder that the private‑equity universe is not a monolith. It’s a complex, layered ecosystem where data quality, reporting standards, and market dynamics all play a role in shaping outcomes. For investors who dig past the headline numbers and examine the underlying assumptions, the takeaway is clear: PE can offer a measured, risk‑adjusted premium, but it comes at a price.

Sources referenced in the article include Cambridge Associates, Preqin, PitchBook, Bloomberg, Harvard Business Review, Institutional Investor, and Private Equity International. For the full Business Insider story and its linked data reports, readers can visit the original publication at Business Insider’s website.

Read the Full Business Insider Article at:
[ https://www.businessinsider.com/do-private-equity-investments-really-beat-the-stock-market-2025-8 ]

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