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Private market funds are below large US stocks for the first time in nearly a quarter of a century, as slower private equity trading activities prevent sector returns.
Tracking private equity, private debt and returns from venture capital funds, State Street’s Private Equity Index achieved a 7.08% return last year, compared to the 25.02% total return on Wall Street’s Blue Chip S&P 500 Index.
This data shows that the S&P 500 outweighs private market funding on the last three months of 2024 and on a 1, 3, 5 and 10-year basis. This is the first calendar year when private market funds lack stock indexes across all measurement time fields since 2000.
The performance gap between the two indices last year was also one of the biggest indices on record.
The decline in performance comes after putting trillions of dollars into the private market worldwide, betting that it will provide more volatile returns and more access to businesses than the stock market.
“The average private equity manager has been clearly affected over the past five years due to the decline in leverage and multiple expansion benefits,” said Arjun Raghavan, CEO of Partners Capital, which invests in the public and private markets on behalf of clients.
Data that measures private funds based on actual cash flows and does not rely on voluntary reporting comes years after the global acquisition industry has struggled to buy and sell companies.
Given the rapid rise in interest rates in 2022 and the cost of borrowing increased dramatically in 2022 to combat inflation, buyers were willing to pay for their assets. The acquisitions department struggled to distribute cash to backers due to a lack of exits thereafter.
The dealers wanted US President Donald Trump’s election rebound, but his aggressive approach to trade tariffs disappointed them.
The State Street Private Equity Index, which includes more than 4,100 funds with dedicated capital totaling over $5.7TN, surpassed the 2022 calendar year S&P 500.
Private debt recorded last year’s best profits for all the State Street Index strategies, with an average of 9.11% profits followed by a 7.05% venture capital. The buyout fund recorded an average return of 6.81%.
Private Equity Index also suffered a performance decline in small listed company Russell 2000 Index in 2024, but surpassed its index beyond its 3, 5 and 10-year perspective.
Private equity is “not a monolithic asset class” and “right managers” are likely to outperform public stocks, Raghavan added that recent profits on the S&P 500 are driven by long-term stocks where performance can be unsustainable.
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Law Firm White & Case mergers and acquisition partner Ken Barry said that best-performing private equity companies rely on exceeding public benchmarks, saying that “it has a low correlation with open market volatility.”
According to State Street, private funds focused on the sector have defeated fellow generalists. Private market funds targeting the financial and energy sectors recorded returns of 15.08% and 10.89% in 2024, respectively. The focus on information technology averaged with a return of 8.12%.
