This report presents the results and lessons learned from the research presentations and discussions at the Private Capital Research Institute (PCRI) meetings and the World Economic Forum, convening global private equity firms and institutional investors. It is also a prelude to the World Economic Forum’s Creating Value through Sustainability in Private Markets initiative,1 which will delve deeper into conditions necessary for industry-wide progress on environmental, social and governance (ESG) and sustainability in private markets, specifically private equity.

This report presents the findings for the three critical areas – returns, relationships and responsibility.

These areas have attracted intense discussion when it comes to the private equity industry, but often with more heat than light: 1. The first of these is the changing nature of returns. Much controversy has surrounded the relative performance of private equity and the public markets, which has enormous implications for global pension funds searching for reliable investment strategies to generate returns to meet their massively unfunded obligations. While the results can be sensitive to the chosen time period and benchmark, the emerging academic consensus is that performance has been “good but not great”.

Most recent studies suggest that private equity has outperformed public market benchmarks, consistent with the historical pattern, but the degree of outperformance has fallen over the decades. Moreover, the extent to which this is affected by adjustments for illiquidity and leverage remains controversial.

2. The second major shift has been the evolving relationships between limited partners (LPs) and general partners (GPs). The disputes over performance have masked a more fundamental change in the nature of GP performance: the apparent death of persistence in private equity.

Historically, funds that outperformed their peers were likely to be followed by another.

Beginning with the funds that matured during the global financial crisis (GFC), this pattern of persistence in later-stage funds disappeared: a winning fund is as likely to be followed by a loser. Interestingly, the same pattern is not seen in venture capital, where original high performers continue to do well in subsequent funds.