A great deal of academic energy goes into to trying to answer the question of whether private equity outperforms more liquid asset classes, and in particular, stocks.
Chris Higson of the London Business School and Rüdiger Stucke of the University of Oxford recently published the most exhaustive study ever on this question. In The Performance of Private Equity, the pair compare annual returns from 1980 to 2008, collected from 85 percent of active U.S. leveraged buyout funds, against the performance of the S&P 500 stock index. Their sample outperforms the S&P 500 by 544 basis points annually. That contrasts with a number of previous studies, using more limited data, which claim average returns in private equity are worse than those in public markets. But all this misses the point of investing in private equity, which is to swing for the fences.