Richard M. Ennis

Aug 14, 2025 by Richard M. Ennis

We study private equity volatility, valuation, and performance through the lens of public-market pricing of private equity interests. This is an important advance in private equity research.[1] Most studies of private equity performance rely on cash flows and net asset values (NAVs).[2] A few incorporate secondary-market pricing of private equity transactions.[3] This is the first to focus on the trading of listed limited partnership interests. Since 1981, private equity funds have been traded on the London Stock Exchange (LSE). We can therefore evaluate the volatility, valuation, and performance of private equity when it is publicly traded and compare it to the funds’ internally-calculated NAV.

 

            We report that the volatility and stock market correlation of listed private equity (LPE) returns are much greater than when determined using NAVs. Discounts from NAV that routinely arise in the trading of LPE shares are greater and more volatile than those reported in the secondary market. LPE has underperformed the public market by a wide margin since the Global Financial Crisis of 2008 (GFC). Relative performance has been especially weak since the Federal Reserve started raising interest rates in 2022.

 

LISTED PRIVATE EQUITY FUNDS

 

            The field of private equity funds is vast and diverse. There are 18,000 funds with more than $5 trillion in assets.[4] The great majority of assets are held in unlisted limited partnerships. There are many fewer listed funds. Some LPE tallies include venture capital and private debt, as well as public corporations active in various aspects of private market investment. Bilo et al. (2005) identify 287 such LPE firms. The S&P Listed Private Equity Index includes approximately 85 companies, primarily in Europe and North America, with an aggregate value of approximately $800 billion.[5] Private equity investment management and operating companies — private equity and credit businesses, as it were — such as 3i, Apollo, Blackstone, Brookfield, and KKR, make up the lion’s share of the value of the S&P LPE index.

 

            We have chosen to focus on a narrower slice of LPE funds. These are portfolios of private equity fund interests listed on the London Stock Exchange. These are “pure” private equity (buyout) funds, with both NAVs and market prices available on a daily basis. These fund interests are typical of the private equity investments made by institutional investors, such as pension funds and endowments. The earliest LSE listing occurred in 1981. We identified 13 such funds, of which 3 were delisted during the study period. Exhibit 1 has descriptive statistics for the 10 extant funds at June 30, 2025.

 

Exhibit 1

LPE Shares Listed on the London Stock Exchange

	Year of Listing	Market Value (Millions)	Number of Portfolio Companies
HG Capital Trust (HGT)	1989	$3,230	>50
HarbourVest Global Private Equity (HVPE)	2007	2,504	>1,000
Pantheon International (PIN)	1987	1,920	480
Oakley Capital Investments (OCI)	2007	1,201	33
ICG Enterprises (ICGT)	1981	1,197	>110
Patria Private Equity (PPET)	2005	1,142	>600
NB Private Equity Partners (NBPE)	2009	888	>88
Apax Global (APAX)	2015	822	~80
Partners Group Private Equity (PEY)	2008	789	n/a
CT Private Equity ((CTPE)	2000	464	>500

Sources: Various, via Perplexity

 

            Representativeness: The number of listings belies the breadth of private equity investment activity represented by these funds. Several of them are funds of funds that, collectively, invest in more than 1,000 separate private equity funds. These constituent funds hold countless individual portfolio companies diversified by geography, sector, vintage, and size. The HarbourVest fund alone invests in 63 of its own funds of funds. The vehicles have commitments to 1,151 underlying private equity funds managed by many different external fund managers. To appreciate the representativeness of this microcosm of private equity, we need to focus on the assets and not merely the number of “wrappers.”

 

            Exhibit 2 shows the steady growth in the market capitalization of the LPE sample. The current aggregate market value is more than $13 billion.

 

Exhibit 2

Market Capitalization of a Sample of LSE-Listed Private Equity Funds

 

VOLATILITY AND CORRELATION

 

            Asness (2023) aptly describes the valuation of private equity interests as “volatility laundering.” It is no secret that the customary valuation of private equity interests, based  on NAV, understates the volatility of reported private equity values and returns. Rasmussen and Grinstead (2025) calculate the volatility (standard deviation of annual return) of LPE, comparing it with stock market volatility for a recent period. See Exhibit 3. The median NAV volatility is slightly less than that of publicly-traded stocks. The median volatility of the listed private equity funds at market, however, is 50% greater than that of stocks. This volatility differential is typically ignored in studies of the performance of private equity. We address this issue squarely later in the paper.

 

Exhibit 3

Annualized Volatility Comparison, 2014–2025

Source: Rasmussen and Grinstead (2025)

 

            While volatility is a primary consideration in risk management, some investors find thinking in terms of maximum drawdowns more tangible. Here again, we see that the drawdowns in the NAVs are significantly understated relative to the drawdowns in the listed PE funds. Exhibit 4 shows the returns for the fiscal year ending 2009 for the LPE index, the LPE NAVs, and the MSCI ACWI. The LPE index had about 2.3x the drawdown of ACWI, a result consistent with the difference in volatility.

 

Exhibit 4

Performance in Year Ended June 30, 2009

 

Source: Rasmussen and Grinstead

           

            Institutional investors tend to treat private equity as an alternative asset class distinct from public equity. We find that LPE is significantly more highly correlated with public equities than the private equity NAVs. See Exhibit 5.

 

Exhibit 5

Correlation of Quarterly Returns of LPE Market and NAV to the ACWI (2015-2025)

Source: Rasmussen and Grinstead

VALUATION

 

            Rasmussen and Grinstead also analyze the volatility of the ratio of market value to NAV, sometimes referred to as the private equity discount. These discounts have been long noted and studied. Possible explanations for them relate to investor sentiment, illiquidity, information asymmetry, and systematic risk. See, for example, Lahr and Kaserer (2010).

 

            Exhibit 6 shows the variation in NAV discounts based on market pricing of LPE interests as well as secondary-market pricing. The blue line indicates market pricing based on the LSE sample of funds. (The series is market-cap weighted.) The red line shows secondary-market pricing according to Jefferies’s Private Capital Advisory group.[6] Reported secondary-market pricing differs from public-market pricing in two ways. First, the average NAV discount for secondary buyout transactions is rarely greater than 10%. The average discount for market pricing is ~20%, in a range of 10% to 35%. Second, the variability of market-based discounts is much greater than for the secondary market.

 

Exhibit 6

Discount to NAV for Listed Private Equity and Secondary Market Transactions

            Sources: Jefferies; Rasmussen and Grinstead

 
           There is reason to believe that the secondary market may provide a misleading picture of private equity valuation. Insiders to secondary market activity speculate that LPs prefer to minimize the discount associated with their transactions. (The motivation may be economic or window dressing.) Hamilton Lane emphasizes that sellers — especially seasoned institutional LPs — deploy various negotiation strategies and may restrict deal participation to select buyers to obtain the best price possible or reduce the size of the discount.[7] And, of course, sellers decide which assets to offer. So, while secondary market transaction data offer an indication of the value of unlisted private equity funds, the data may present a biased picture of latent market pricing of private equity interests.

 

            Dissatisfaction with NAVs has led to suggestions that private equity valuation begin to give consideration to secondary-market pricing. While that is a step in the right direction, these results indicate that the scope of the valuation problem may be much larger than is commonly believed to be the case. Secondary-market discounts may be just the tip of the mis-valuation iceberg.

            This has become an especially important issue for investors with large allocations to private assets, e.g., the Ivy League Schools and other, similar private institutions. Many are facing an acute financial squeeze. Some are selling endowment assets and borrowing heavily to finance their operations. As for the asset sales, the institutions need the cash. At the same time, endowment managers are reluctant to reveal that assets on the books are worth significantly less than their stated value. No doubt they are being selective in deciding which assets to sell and how to structure their offerings so as to minimize the discounts from NAV they will inevitably have to report.

 

PERFORMANCE

 

            Efforts to evaluate the performance of private equity have been frustrated by the absence of market values. Analysts have had to work with cash flows, IRRs, and NAVs. True time-weighted returns have not been available.[8] We avoid this problem by creating a market-capitalization-weighted return series for the sample of 13 LPE funds for the years ending June 30, from 2001 to 2025.  

 

            Study Period

 

            We begin performance evaluation with the year ended June 30, 2009. That is the first year following adoption of the Financial Accounting Standards Board’s ASC 820, which requires that consideration of “market” be incorporated in the valuation of private assets.[9] Easton et al. (2021) show that “reported net asset valuations more accurately predict future net distributions following ASC 820,” indicating a pricing improvement. Additionally, the GFC of 2008 was a watershed event in the pricing of risky assets, including private equity. For these reasons, we begin the analysis of performance with the year ended June 30, 2009, which provides 17 years of LPE returns to study.

 

            Return Comparison

 

            Initially, we compare the LPE return series with that of the MSCI ACWI global stock index, which we use as a proxy for the market. Later, we compare the returns of LPE with those of the  Russell 3000 stock index. The LPE series has an annualized return of 5.02% over the 17-year period. This is 2.8 percentage points per year less than the ACWI return, which is 7.82%.

 

            A harbinger? It is worth noting that LPE significantly underperformed the stock market once the Federal Reserve began hiking interest rates in 2022. LPE underperformed ACWI by an average of 4.7 percentage points per year during those three years. See Exhibit 7. Could this be an indication of what’s to come for private equity now that the Fed’s zero-interest-rate policy (ZIRP) has ended?

 

Exhibit 7

Return Comparison Post-ZIRP

Years ended June 30	Listed Private Equity	MSCI ACWI	Difference
2023	11.7%	16.5%	-4.8%
2024	15.4	19.4	-4.0
2025	11.0	16.2	-5.2

 

 

            Risk-Adjusted Returns

           

            Using time-weighted returns derived from public-market pricing, we evaluate LPE performance two ways: with Sharpe ratio and CAPM. Exhibit 8 summarizes the Sharpe ratio analysis. The Sharpe ratio of LPE is 0.13, compared to 0.39 for ACWI. LPE underperformed publicly traded stocks by a wide margin when returns are adjusted for risk.

 

Exhibit 8

Sharpe Ratios

(June 30, 2008-2025)

	Listed Private Equity (LPE)	Private Equity at NAV	MSCI ACWI
Annualized Return	5.02%	3.95%	7.82%
Volatility	30%	19%	17%
Sharpe Ratio	0.13	0.14	0.39

 

            We also use CAPM to evaluate the performance of the LPE series. Exhibit 9 depicts regression of the excess returns (risk premiums) 2of the LPE series on those of the ACWI index, our market proxy. An LPE beta of 1.7 indicates that the systematic volatility of publicly traded private equity was 70% greater than for the market as a whole. This is consistent with private equity’s greater use of leverage relative to publicly-traded companies.[10] Capturing the impact of leverage in evaluating private equity performance has largely been absent in prior studies. Alpha is -4.5%, annualized, with a t-statistic of -1.7.

 

Exhibit 9

Listed Private Equity Returns Regressed on MSCI ACWI

(June 30, 2008-2025)

 

            Market pricing reveals an R² of 90% for private equity with ACWI, illustrating the strong kinship of private equity and publicly traded stocks when private equity is valued in economic, rather than accounting (NAV), terms. The R² is greater than observed in studies gauging private equity performance using secondary-market pricing.[11]

 

            Phalippou (2020) warns against the incautious use of ACWI in benchmarking private equity returns based on the fact that private equity funds have traditionally invested heavily in the US market. He points out that ACWI has widely underperformed the US stock market, and, for this reason, its use in performance studies can unduly tilt the outcome to favor private equity. In this regard, we looked at the correlation of the LPE return series with ACWI and Russell 3000 to see if that might provide some guidance in the choice of benchmark. We found that during the 17 years of this study, the correlation of the LPE series with US and non-US stocks was essentially identical: The correlation coefficient (r-value) of LPE with ACWI is .9413, and .9419 with Russell 3000. We chose to begin this analysis of the performance of LPE using ACWI owing to its greater generality. But we also look at the results of using the Russell 3000 as the market index.

 

            Using the Russell 3000 in the CAPM calculations results in a dramatic deterioration in LPE performance. While the beta and R² in Exhibit 9 (1.7 and 90%, respectively) are unchanged, the alpha falls to -11.1% with a t-statistic of -3.7. This illustrates that the choice of benchmark can indeed have a major impact on the outcome of performance measurement for private equity, at least during this period of divergent market returns. Either way we look at it, though, the LPE return series has not fully compensated investors for the market risk incurred let alone generate a gain in economic terms.

 

            Summing up risk-adjusted performance discussion: LPE has underperformed the stock market by a wide margin in risk-adjusted terms. The Sharpe ratio of LPE is 0.13, compared with 0.39 for ACWI. The CAPM beta is 1.7 and alpha is -4.5% per year with the global equity market index. The negative alpha is much larger (-11.1%) if the Russell 3000 serves as the market index, underscoring the importance of benchmark selection in studies of private equity performance. The alphas, ranging from -4.5% to -11.1%, may be the most striking result we report. Here, there are two things to keep in mind. First, this may be the first discussion of private equity performance you have seen that requires that market risk be fully compensated before declaring a profit on the investment. Second, estimates of the cost of private equity investing (buyouts) are in the range of 6% to 8% per year.[12] In this light, a seemingly large negative alpha, which can be thought of as fee drag, isn’t really surprising at all.
           

 

CONCLUSION

 

            The market pricing of private equity interests as observed on the LSE provides an opportunity to improve our understanding of private equity’s volatility, pricing and performance. Private equity is much more volatile than commonly thought. Public-market volatility greatly exceeds NAV volatility. Institutional investors could be significantly underestimating the risk of their private equity portfolios. Our research also suggests that private equity is more highly correlated with public equity markets than the NAVs would imply, suggesting that overall portfolio risk calculations might be understated to the extent investors are relying on private equity to be a diversifier.

 

            The market pricing of private equity relative to NAV is well below that indicated by secondary-market transactions and varies much more widely. This raises a question about the usefulness of the secondary market as an indicator of fluctuating private equity market value. It also illustrates a conundrum for institutions with large allocations to private assets that need to raise cash. Selling private assets in the secondary market reveals that remaining assets are likely being valued in excess of their fair market value. LPE’s beta of 1.7 accords with private equity’s greater leverage compared to that of public companies. LPE has underperformed the stock market by wide margin since the GFC. Performance has been especially weak since the Federal Reserve began raising interest rates in 2022.

 

 

ACKNOWLEDGEMENTS

 

We gratefully acknowledge helpful comments of Antti Ilmanen, Nicolas Rabener, and Trym Riksen.

 

 

REFERENCES

 

Asness, C. 2023. “Volatility Laundering.” AQR Capital Management. https://www.aqr.com/Insights/Perspectives/Volatility-Laundering

 

Bilo, S., H. Christopher, M. Degosciu, and H. Zimmermann. 2005. “Risk, Returns, and Biases of Listed Private Equity Portfolios.” University of Basel, WWZ/Department of Finance, Working Paper No. 1/05.

 

Boyer, B. H., T.D. Nadauld, K. Vorkink, and M. Weisbach. 2023. “Discount‐Rate Risk in Private Equity: Evidence from Secondary Market Transactions,” The Journal of Finance 78, 835–885.

 

Easton, P., S. Larocquea, and J.S. Stevens. 2021. “Private Equity Valuation Before and After ASC 820.” Journal of Investment Management, Vol. 19, No. 4, pp. 105–135.

 

Ennis, R.M. 2025. “The Demise of Alternative Investments.” The Journal of Portfolio Management (forthcoming October 1).

 

Gensler, G. 2021. Testimony Before the Subcommittee on Financial Services and General, U.S. Government, U.S. House Appopriations Committee.  At https://www.sec.gov/newsroom/speeches-statements/gensler-2021-05-26.

 

Godwin, A. 2022. "Estimating Illiquid Asset Class Alpha and Beta using Secondary Transaction Prices." MPRA Paper 112510, University Library of Munich, Germany.

 

Harris, R.S., T. Jenkinson, S.N. Kaplan, and R. Stucke. 2023. “Has Persistence Persisted in Private Equity? Evidence from Buyout and Venture Capital Funds.” Journal of Corporate Finance, Volume 81.

 

Jefferies Private Capital Advisory. January 2021 and 2025. “Global Secondary Market Review.”

 

Jenkinson, T., H. Kim, and M. Weisbach. 2021. “Buyouts: A Primer.” NBER Working Paper No. w29502, Available at SSRN: https://ssrn.com/abstract=3968725.

 

Hamilton Lane, "The Truth About Secondaries: Separating Myth from Market Opportunity," July 16, 2025.

 

Kurtovic´ H., G Markarian, G.,  and P. Breuer. 2023. “The Risk and Performance of Listed Private Equity.” The Journal of Alternative Investing, pp. 77-94.

 

Lahr, H. and C. Kaserer. 2010. “Net Asset Value Discounts in Listed Private Equity Funds.” CEFS Working Paper No. 2009-12, Available at SSRN: https://ssrn.com/abstract=1494246 

or http://dx.doi.org/10.2139/ssrn.1494246.

 

Lim, W. 2024. “Accessing Private Markets: What Does It Cost?” Financial Analysts Journal, 80(4), 27–52.

 

Phalippou, L., and O. Gottschalg. 2009. “The Performance of Private Equity Funds.” The Review of Financial Studies 22 (4): 1747–1776.

 

Phalippou, L. 2020. “An Inconvenient Fact: Private Equity Returns & The Billionaire Factory.” University of Oxford, Said Business School, Working Paper, Available at SSRN: https://ssrn.com/abstract=3623820 or http://dx.doi.org/10.2139/ssrn.3623820

 

Rasmussen, D. and J. Grinstead. 2025. “When Private Funds Are Publicly Traded.” Verdad.

 

Scharf, D. 2021. ”GP-Led Transactions: What LPs Need to Know.” Hamilton Lane,

September 23.

S&P Dow Jones Indices. “S&P Listed Private Equity Index.” July 31, 2025. At

https://www.spglobal.com/spdji/en/idsenhancedfactsheet/file.pdf?calcFrequency=M&force_download=true&hostIdentifier=48190c8c-42c4-46af-8d1a-0cd5db894797&languageId=1&indexId=92479391

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