Private equity has rarely done good for investors too.
With the boom of popularity of ETFs in the last decades it has been increasingly hard for active fund managers to justify their costs by investing on public markets where benchmarks are visible and public.
Thus they removed themselves from the benchmark entirely and moved to private equity where there's no benchmark and returns are very hard to gauge.
Analysis shows that:
- The overwhelming majority of PEs lose money.
- Annualized return of PE in UK has been 2.1%, this doesn't even match parking money in short-term bonds.
- PE performance is extremely murky, as their gains are virtual and whether you exit profitably is heavily dependent on your timing
- The entire sector is ripe with corruption and little regulatory oversight. PEs keep ballooning their holdings valuations by essentially trading companies among themselves. So fund A sells Acme to to fund B at twice the valuation, and will return the favour by buying Foobar at inflated valuation. This all obviously requires access to cheap credit. Many startups are approached by PEs that have already lined up to sell the startup to another PE after few years guaranteeing everybody (from founders to all the PE managers) nice profits, up to the last sucker stuck with the bill.
The only ones that have profited out of PE, beyond the managers working there, are those that invested in the PE itself, meaning buying shares of the fund itself.