Key Takeaways
- • Private equity generated a 13% net annualized time-weighted return since 2000 versus 8% for the Russell 3000, per MSCI Private Capital Solutions, an outperformance of 486 bps.
- • A $1 investment in buyout private equity in 2000 would have grown to 19.9x by the study's measure, versus 6.6x for public markets, roughly three times the wealth creation according to Dawson's analysis.
- • Private equity outperformed public markets across 5-, 10-, 15-, 20- and 25-year periods and in 97 of the last 100 quarters on a rolling 10-year net return basis.
- • Buyout firms acquired assets at an average 9.6x EBITDA versus a 12.1x public index multiple, per PitchBook Data, and public-to-private targets improved EBITDA margins by 370 bps.
- • Dawson argues private equity delivered higher returns with lower volatility, citing LTM EBITDA growth of 11% versus 7% for public equities over the past decade.
Summary
Dawson, writing in Institutional Investor, examines whether private equity has outperformed public markets over the past 25 years and concludes that it has. Using MSCI Private Capital Solutions data, the firm reports a net annualized time-weighted return of 13% for buyout private equity since 2000, compared with 8% for the Russell 3000, which was selected to limit the influence of the Magnificent Seven. The paper states that a 2000 investment in private equity would have produced a 19.9x net multiple of capital, versus 6.6x for public market investors. The analysis excludes venture capital and growth equity.
The paper argues that outperformance has been consistent rather than dependent on entry timing. Private equity led public markets across 5-, 10-, 15-, 20- and 25-year horizons. On a rolling 10-year basis, private equity was tracking higher net returns in 97 of the last 100 quarters, and the three quarters of underperformance were followed by a recovery in the next quarter.
Dawson attributes the performance to three sources of alpha: buying, building and selling well. According to PitchBook Data, buyout transactions were completed at an average 9.6x EBITDA versus a 12.1x public index average, a 2.5x discount that Dawson says has persisted across the 2000-2009, 2010-2019 and 2020-2024 cohorts. Across 224 realized public-to-private transactions involving 29 managers, Dawson reports average EBITDA margin expansion of 370 bps (20% to 24%), with entry at 9.5x and exit at 10.7x EBITDA. These deals generated average gross returns of roughly 21% IRR and 2.7x MoC, or about 17% IRR and 2.2x MoC net on an illustrative basis. Dawson acknowledges that these results are not solely attributable to private equity ownership.
On volatility, Dawson contends private equity has been less volatile than public markets despite higher leverage. The worst rolling 10-year quarter was a 9% gain for private equity versus a 2% decline for public equities. During the dot-com bubble, the GFC and the 2022 correction, public equities experienced declines at least 1,000 bps larger than private equity. The firm attributes this to operating performance: private equity LTM EBITDA growth averaged 11% over the past decade versus 7% for public equities, and its range of annual EBITDA growth was narrower. Dawson credits deeper engagement, sharper ownership focus and long-term governance for these results.
The paper argues that outperformance has been consistent rather than dependent on entry timing. Private equity led public markets across 5-, 10-, 15-, 20- and 25-year horizons. On a rolling 10-year basis, private equity was tracking higher net returns in 97 of the last 100 quarters, and the three quarters of underperformance were followed by a recovery in the next quarter.
Dawson attributes the performance to three sources of alpha: buying, building and selling well. According to PitchBook Data, buyout transactions were completed at an average 9.6x EBITDA versus a 12.1x public index average, a 2.5x discount that Dawson says has persisted across the 2000-2009, 2010-2019 and 2020-2024 cohorts. Across 224 realized public-to-private transactions involving 29 managers, Dawson reports average EBITDA margin expansion of 370 bps (20% to 24%), with entry at 9.5x and exit at 10.7x EBITDA. These deals generated average gross returns of roughly 21% IRR and 2.7x MoC, or about 17% IRR and 2.2x MoC net on an illustrative basis. Dawson acknowledges that these results are not solely attributable to private equity ownership.
On volatility, Dawson contends private equity has been less volatile than public markets despite higher leverage. The worst rolling 10-year quarter was a 9% gain for private equity versus a 2% decline for public equities. During the dot-com bubble, the GFC and the 2022 correction, public equities experienced declines at least 1,000 bps larger than private equity. The firm attributes this to operating performance: private equity LTM EBITDA growth averaged 11% over the past decade versus 7% for public equities, and its range of annual EBITDA growth was narrower. Dawson credits deeper engagement, sharper ownership focus and long-term governance for these results.
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