Explaining Buyout Industry Returns: New Evidence

Vol. 17 No.1, 2019
David Turkington

Traditional equity factors such as the leveraged equity risk premium, the small-cap premium, and the value premium have had high historical returns on average, as has the buyout fund industry in aggregate. Previous research has argued that these factors explain the excess performance of private equity over public equity. However, time series regression analysis reveals that these factors explain surprisingly little variation in buyout performance. In contrast, I find that other factors such as the credit premium and dynamic sector selection are more effective at explaining variation in performance of the buyout industry over time.