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Can Private Equity Outperformance Persist?

June 24, 2021

Stacked 100% column chart showing U.S. public and private revenue. Chart subtitle: A larger universe of private companies presents a more robust opportunity set for private equity investors. Chart description: No y-axis. X-axis labeled U.S. Public & Private Companies by LTM Revenue ($M). Column shows six categories by percentage. From bottom to top of column: U.S. Private Companies $100M-499M in dark blue make up 65%; U.S. Private Companies $500M-1,000M in blue make up 10%; U.S. Private Companies $1,000M+ in light blue make up 12%; U.S. Public Companies $100M-499M make up 4%; U.S. Public Companies $500M-1000M make up 2%; U.S. Public Companies $1,000M+ make up 7%. Grey overlay and label highlights that 87% of U.S. companies with annual revenue greater than $100M are private. Chart source: Capital IQ as of February 2021.

North American private equity managers have consistently outperformed the Russell 3000 as well as other broad equity indices over the last 20 years.¹ Key value drivers that have contributed to this outperformance include information asymmetry, a longer-term strategic focus, use of leverage, improved management and governance, and effective value creation plans. But for private equity managers to continue to achieve these outsized returns, they must first find the right opportunities and then be able to effectively monetize their investments.

In the U.S. there are approximately 17,500 private companies with annual revenue greater than $100 million, compared to roughly 2,600 public companies above the same revenue threshold. For every one public opportunity at this level, there are almost seven private opportunities. There are also more than 340,000 private businesses with revenue between $5 and $100 million. As private markets continue to grow and evolve, private companies will be able to access capital with greater ease than they have historically. This, in addition to the disadvantages of going public, should extend the trend of companies staying private for longer. This sets the stage for private equity managers to continue to deliver attractive risk-adjusted returns, with a robust opportunity set and a number of unique investment advantages.

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¹Pitchbook as of Q320, latest data available.
Sources: Capital IQ, Forbes, and PitchBook

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.