Does Private Equity Actually Beat the Stock Market?

Private equity has beaten public markets over long horizons, but modestly and inconsistently. Cambridge Associates data shows US private equity returned 15.1% annually over 10 years to December 31, 2024, versus 13.3% for an S&P 500 public-market-equivalent, about 1.8 points a year. After fees and risk adjustment, several studies find the gap shrinks or disappears.

Has private equity beaten public markets?

Yes, over long horizons, but the size of the win depends entirely on the benchmark and the time period. The Cambridge Associates US Private Equity Index (1,661 US buyout and growth funds, $1.6 trillion, as of December 31, 2024) outperformed the S&P 500 public-market-equivalent for every period longer than three years, and beat the small-cap Russell 2000 in all but two periods measured. Cambridge Associates

Private equity fund returns vs public markets is a comparison that only works when both sides use cash-flow-matched math (a public-market-equivalent), because private funds draw and return capital on their own schedule rather than trading daily.

How big is the outperformance, and in what units?

The measured outperformance clusters around 2% to 4% a year, but different providers report it differently, and the unit matters more than the headline.

A PME above 1.0 means the fund beat the index after fees; a buyout PME of 1.20–1.27 means each dollar returned roughly 20–27% more than the same cash flows in the S&P 500 over a fund’s life.

The metrics that decide the answer (IRR, MOIC, TVPI, DPI, PME)

Private equity uses different math from public markets, and the choice of metric can flip the story. Learn these five before trusting any number.

IRR (internal rate of return): the annualized return that accounts for the timing of cash in and out. It is time-sensitive and can be inflated by delaying capital calls. MOIC / TVPI (multiple of invested capital / total value to paid-in): total value divided by capital paid in. It ignores timing, a 2.5x over 5 years and over 20 years look identical here. DPI (distributions to paid-in): cash actually returned per dollar invested. It cannot be inflated by paper markups. PME (public market equivalent): what the same cash flows would have earned in a stock index. Above 1.0 means PE won. Net vs gross: net is after all fees and carried interest — the only number an investor actually keeps.

What is PME (public market equivalent)?

PME is a private-to-public comparison that invests the fund’s exact cash flows into a chosen index and compares the result. The Kaplan-Schoar PME and the Direct Alpha method (Gredil, Griffiths, Stucke) are the two most cited versions; Cambridge’s mPME and the Long-Nickels method are variants.

Why fees change the verdict

Fees are the single biggest reason gross and net PE returns diverge, and many cheerful charts quietly report gross. The standard “2 and 20” structure charges a 2% annual management fee plus 20% of profits above an 8% hurdle.

For a typical 2-and-20 fund returning 2x gross over ten years, fee drag runs about 4 to 6 percentage points of IRR. That is often the whole difference between “PE beat stocks” and “PE matched stocks.”

A simplified example:

An investor commits $100M; the fund deploys about $80M after a decade of fees. The portfolio returns $300M gross. Carried interest of 20% on the $200M profit is $40M to the manager. The investor nets $260M, a 2.6x net multiple, Qubit Capital not the 3.0x gross figure.

Why the experts disagree about PE outperformance

The debate is not about the raw numbers; it is about the benchmark and the fees. Both camps use real data and reach opposite conclusions.

Ludovic Phalippou of Oxford reports net multiples of money of 1.55, 1.57, and 1.63 across three large datasets, implying roughly an 11% annual return, in line with public stocks, while the industry collected an estimated $230 billion in carried interest on 2006–2015 funds. The skeptics’ core point, following Phalippou (2014): pre-2006 outperformance “was driven by the choice of the benchmark (e.g., large cap indices such as the S&P 500),” and because buyout funds “invest almost entirely in companies that would fall below the S&P 500 size range,” a small-cap or micro-cap benchmark is fairer. Benchmark against leveraged small-cap value, count every fee, and the illiquidity premium largely disappears.

Vintage year and the J-curve

A private equity fund’s returns are negative before they are positive, so the year a fund starts (its vintage) shapes everything. The J-curve is the shape of net returns over a fund’s life: down in the first three to five years as fees and drawdowns hit, then rising as investments mature and exit.

Because of the J-curve, a 2024 fund and a 2018 fund are at different points on their curves and cannot be compared on current IRR. IB IQ Buyout J-curves are shallower and shorter; venture capital J-curves are deeper and longer. This is why funds must be compared only within the same vintage.

Why manager selection decides your outcome

In private equity, which fund you pick matters far more than the asset class average. The spread between top-quartile and bottom-quartile funds is about 12.9 percentage points, versus roughly 1.5 points for public-equity funds, according to an RVK analysis surfaced via Nasdaq’s eVestment Market Lens platform.

Venture capital shows the widest dispersion, over 30 percentage points between top and bottom quartiles in most vintage years, which is why manager access is the dominant variable in VC. There is some evidence of persistence (good managers repeating), stronger in venture than in buyout, though several studies find buyout persistence has weakened in recent vintages.

How IRR gets gamed (subscription lines, NAV loans, continuation funds)

Reported IRR can be legally engineered upward without earning a single extra dollar, so intermediate readers should treat a standalone IRR with suspicion. The main levers:

Subscription credit lines: the fund borrows to delay calling investor capital, compressing the time money is “at work” and inflating IRR, estimates of the effect range from roughly 150 to 700 basis points depending on the study. NAV loans: the fund borrows against portfolio value to pay distributions, boosting DPI with debt rather than real exits. Dividend recaps: early distributions funded by portfolio-company debt front-load IRR while adding risk. Continuation funds: a manager sells an asset to a new fund it also controls, generating a distribution and resetting fees. Per Jefferies’ Global Secondary Market Review (January 2025), GP-led volume reached a record $75 billion in 2024 (up from $52 billion in 2023), part of total secondary volume of $160 billion.

Subscription credit lines and the SEC Marketing Rule

Since a February 2024 SEC clarification of the Marketing Rule, advisers marketing IRR figures must show performance both with and without subscription-line effects. If a pitch deck shows only one IRR, ask for the other.

[EXPERIENCE: Insert a fund administrator’s or LP’s first-hand account from a Nexus expert call of asking a GP for “unlevered” IRR and what the adjusted number revealed, verify before publishing.]

What changed in the last three years

The long-run PE premium is real, but the 2022–2025 cycle interrupted it, and buyers should know why. Since the October 2022 trough, the S&P 500 compounded at more than 20% a year for three straight years, led by the “Magnificent Seven,” which delivered more than half of the index’s three-year total return.

The 2021–2023 buyout vintages currently show negative direct alpha of roughly −5% to −12% against the MSCI ACWI, the first consecutive run to trail public markets in the series (Allianz Trade, June 2026), though these young funds are still J-curve distorted.

Per Bain & Company’s Global Private Equity Report 2026 (February 23, 2026), distributions to LPs as a percentage of NAV were essentially flat at 14% for 2025, “a level not seen since 2008-09”, and have “held below 15% for four years running, an industry record.”

Distributions finally exceeded capital contributions in 2024 for the first time since 2015 (McKinsey), and DPI has overtaken IRR as the metric most LPs now rank first.

Buyout vs venture capital returns

Buyout and venture capital are different bets, and lumping them together hides the truth. Buyout delivers tighter, more reliable returns; venture offers a higher ceiling and a deeper floor.

So is private equity worth it vs index funds?

Private equity is worth it only if you can access top-quartile managers and can hold illiquid positions for a decade; for everyone else, a low-cost index fund is a defensible default. The extra return PE must deliver to justify locking up capital is the illiquidity premium, commonly cited as needing to be around 3% to 5% a year above public markets to compensate.

Consider private equity if you:

Can commit capital for 10+ years and tolerate no interim liquidity. Have the diligence resources (or advisors) to select and access top managers. Are diversifying across managers, strategies, vintages, and regions.

Think twice, or stay in index funds, if you:

Need liquidity or predictable cash flow. Cannot access top-quartile funds (median and bottom funds often match or trail cheap index funds after fees). Are being sold on a gross or subscription-line-inflated IRR.

The Nexus PE Return Reality Check (5 filters)

Run any private equity outperformance claim through these five filters before you believe it. This is the checklist Nexus Expert Research built from what LPs, fund administrators, and valuation specialists actually probe in expert calls.

Benchmark: Is PE compared to the right index? A large-cap S&P 500 flatters buyout; a leveraged small-cap value benchmark is a fairer test. After fees: Is the number net of the full 2-and-20 load, or gross? Subtract 4–6 points of IRR if it is gross. Cash, not paper: What is DPI? A high IRR with a low DPI means the money has not actually come back. Age: What vintage, and where on the J-curve? Young funds report misleadingly negative or volatile IRRs. Dispersion: Is this the top quartile or the average? The median tells you little when quartiles are ~13 points apart.

Frequently asked questions

Has private equity outperformed the S&P 500?
Yes, over 10-, 15-, 20-, and 25-year horizons to December 31, 2024, the Cambridge Associates US Private Equity Index beat an S&P 500 public-market-equivalent by roughly 1.8 to 3.2 points a year. Over shorter recent periods, strong large-cap tech returns narrowed or erased the gap.

What is the average private equity return over the last 10 years?
About 15.1% net annualized for US private equity over the decade to December 31, 2024, per Cambridge Associates, versus 13.3% for the S&P 500 on a public-market-equivalent basis.

Does private equity still beat stocks after fees?
Sometimes. Provider data (MSCI, Cambridge) says yes by 2–4 points a year net; skeptics (Phalippou, AQR) argue that with the right benchmark and full fees, the advantage largely disappears.

What is a good PME for a private equity fund?
Above 1.0 means the fund beat the public index after fees. Buyout funds have historically averaged a PME of roughly 1.20–1.27 (Harris, Jenkinson & Kaplan, 2014).

Why is IRR criticized as a performance metric?
Because subscription credit lines and NAV loans can inflate IRR without increasing the cash returned. Always read IRR alongside DPI and MOIC.

Conclusion: pressure-test the claim before you act

Before you rely on any private equity performance figure in a client deck or an allocation decision, run it through the five-filter reality check above, benchmark, fees, cash, age, dispersion. If you need a practitioner who has actually priced these funds to sanity-check a track record, tell Nexus Expert Research what you’re evaluating and we will recruit the right LP, GP, or valuation specialist for a primary-research call.