Bar chart showing annualized 3-, 5-, 10-, 15-, 20-, and 25-year returns for Cambridge Associates U.S. Private Equity, MSCI World Index, Russell 2000 Index, and Bloomberg U.S. Aggregate Bond Index as of September 2023. Private equity outperformed all other asset classes at all time frames.
Risks
Investing in stocks involves risk and their returns and risk levels can vary depending on prevailing market and economic conditions. Small cap stocks are generally more volatile than large cap stocks. Foreign investing has additional risks including currency, transaction, volatility and political and regulatory uncertainty. These risks are heightened in emerging markets. Bonds are subject to interest rate, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates.
Alternative investments, such as private equity funds, are not appropriate for all investors and are only open to “accredited” or “qualified” investors within the meaning of the U.S. securities laws. They are speculative and involve a high degree of risk that is appropriate only for those investors who have the financial sophistication and expertise to evaluate the merits and risks of an investment in a fund and for which the fund does not represent a complete investment program. Private equity funds use complex trading strategies, including hedging and leveraging through derivatives and short selling. These funds often demand long holding periods to allow for a turnaround and exit strategy. Private equity investing involves other material risks including capital loss and the loss of the entire amount invested.
Definitions
Index definitions
Bloomberg U.S. Aggregate Bond Index is a broad-based measure of the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market.The Cambridge Associates LLC U.S. Private Equity Index® uses a horizon calculation based on data compiled from more than 1,400 institutional-quality buyout, growth equity, private equity energy, and subordinated capital funds formed after 1986. The funds included in the index report their performance voluntarily and therefore the index may reflect a bias toward funds with records of success. Funds report unaudited quarterly data to Cambridge Associates when calculating the index. The index is not transparent and cannot be independently verified because Cambridge Associates does not identify the funds included in the index. Because Cambridge Associates recalculates the index each time a new fund is added, the historical performance of the index is not fixed, can’t be replicated and will differ over time from the day presented. The returns shown are net of fees, expenses and carried interest. Index returns do not represent fund performance.
The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets including the United States.
The Russell 2000 measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index.
Sources: © Morningstar Direct, All Rights Reserved,1 Cambridge Associates, IHS Markit, and Wells Fargo Investment Institute, as of September 30, 2023. Most recent data lags up to 2 quarters for Cambridge Associates U.S. Private Equity Index. The index representing private equity utilizes a modified private market equivalent (mPME) calculation as a way to replicate private investment performance under public market conditions. Index returns represent general market results, assume the reinvestment of dividends and other distributions, and do not reflect deduction for fees, expenses or taxes applicable to an actual investment. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. More information on the limitations of utilizing this Index can be found at the “Index Definitions and Asset Class Risk Disclosures” link above, along with index definitions and asset class risk.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Diversification strategies do not guarantee investment returns or eliminate the risk of loss.
1. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
Key Takeaways
- Private Equity funds strive to deliver significant capital appreciation for investors over longer periods of time.
- Private Equity has historically provided an illiquidity premium compared to publicly traded equities. This illiquidity premium has helped compensate investors for the additional risk assumed, in part due to the lack of ease and efficiency to trade or liquidate these assets frequently.