Private Market Manager Premium Persists

How hard is it to beat the world equity index

A world equity index is hard to beat.  And, according to the SPIVA studies, very few active global equity managers do so persistently.

Listed Private Market Managers have persistently outperformed world equities

And yet, an index-tracking fund that tracks an index of the largest listed private market managers (firms such as Apollo Global Management, Blackstone, Brookfield, KKR and 3i) has persistently outperformed a broader world equity index since 2008.
This persistent long-term outperformance is one of the reasons we like including Listed Private Market Managers as an exposure within portfolios we consult on.

What is the return premium for Private Market Managers?

We refresh our regular study and find that the long-term (since 2008) premium of Listed Private Market Managers performance over Public Equities increased from +3.2% at end 2023 to +3.4% at end 2024.
For investment committess targeting a net return of say World Equities +2%, net of fees, exposure to a simple Private Market Managers ETF has consistently delivered persistent alpha.

How did Private Market Managers perform in 2024?

​In 2024, Private Market Managers was one of the best performing asset classes, returning +31.7%, compared to +17.3% for World Equities, both in GBP terms.

What is the right "PME" benchmark for a private equity fund?

This raises the question should private equity funds aim to deliver returns above public equities (represented by a world equity index), or should they aim to deliver returns above the returns of a listed private market managers index (on a public market equivalent ("PME") calculation basis)?  We think the latter: but we don't expect many to accept the challenge.

What are the risks?

Unsurprisingly, Listed Private Market Managers is a higher beta index, relative to a world equity index.  This means when markets are up, they go up more.  When markets are down, they go down more.  The performance of Listed Private Market Managers experienced a major dip in 2022 as interest rates rose rapidly.  This was because of the exposure of private market funds to rising borrowing costs.  This made the sector even more sensitive to rising interest rates than the Property or Infrastructure sector, within the Alternative Assets basket.

What about the "illiquidity premium"?

We prefer not to have exposure to illiquid funds in any portfolio we consult on for our UK financial adviser community.  Why? Because we think the "illiquidity premium" is elusive: hard to harvest if things go well, and evaporating quickly if things do not.

What does this mean for investment committees?

• For those wanting attractive equity returns, we believe that low-cost exposure to publicly listed securities are sufficient.
• For those wanting diversification, there are efficient ways of achieving that without the "volatility laundering" that comes with infrequent valuation data points.
• And for those wanting a persistent outperformance relative to world equities, an allocation to highly liquid daily traded Listed Private Market Managers could help, so long as you are willing to accept the additional volatility and high beta.
• For many looking on at the fees earned by private market managers, it turns out, that if you can't beat 'em, own 'em.

For this reason, we would rather our clients were shareholders of the private market managers, than see our clients as captive investors in their funds.

How can UK advisers get exposure?

This exposure is readily available via a London-listed ETF launched back in 2007.  There is nothing new about this exposure, but it is certainly worth taking a fresh look.  For platforms that cannot trade ETFs, advisers can consider a Alternatives fund that includes an allocation to a Listed Private Markets Manager ETF.

Find out more

• Watch our 2021 CISI-endorsed CPD Webinar on the growth in private markets
• Read all our private markets research