A new Wealth Insights piece from Alisa Wood, Partner overseeing KKR’s private equity strategies for wealth, titled: “Staying on Course in Private Equity.”
In the piece, Wood and her team discuss:
- How volatility in public markets creates uncertainty for investors across the board, including in their private markets portfolios, but these impacts are not distributed equally
- Data shows that private equity investments made during periods of high market volatility and macro complexity have often generated the highest returns relative to calmer periods
- The historical gap between the returns of top-performing and bottom-performing managers is approximately 14%. Skill, experience, and resources all matter, and they matter most when markets are complex and challenging
- Volatility in public markets can lead to compelling valuations for take-private transactions, valuable opportunities to spin out non-core assets of larger businesses, new ways to partner with family-owned businesses that need operational and markets expertise, and more sponsor-to-sponsor transactions when IPOs are not a reliable exit route
Read hedge fund letters here
To say there is uncertainty in the economy today is an understatement. Global stock markets are volatile. Geopolitical tensions are rising all over the world. New tariffs have reoriented longstanding trade relationships and called the future path of economic growth, interest rates, and inflation into question.
We know volatility in public markets creates uncertainty for investors across the board, including in their private markets portfolios. However, we think it’s important to remember that private equity returns are less correlated to movements in the public markets. In fact, private equity has historically outperformed public stock markets over time (Exhibit 1) and private equity investments made during periods of high market volatility and macro complexity have often generated the highest returns relative to calmer periods (Exhibit 2).
EXHIBIT 1: Private Equity Outperforms Public Stocks….
Source: Cambridge Associates LLC Benchmark Statistics as of September 30, 2024. Data reflects actual pooled horizon return, net of fees, expenses and carried interest. For funds formed between 1986‐2023.
EXHIBIT 2: …Especially when Public Markets Falter
Source: Cambridge Associates, Pitchbook, KKR Global Macro & Asset Allocation analysis as of September 30, 2024. Data reflects actual pooled horizon return, net of fees, expenses and carried interest. For funds formed between 1986‐2023.
In nearly 50 years of experience investing in private companies—through the dot-com bubble, the Global Financial Crisis (GFC), SARS, and the COVID-19 pandemic (just to name a recent few)—we have observed that volatility can open a wide variety of new opportunities. Along the way, we’ve learned valuable lessons about pacing ourselves through cycles and developed repeatable playbooks for value creation that work in all kinds of economic conditions. This is very much in line with the view that “creating your own luck” drives repeatable performance alpha.
The opportunities that arise in times of volatility are not always available to everyone, however. The historical gap between the returns of top-performing and bottom-performing managers is approximately 14%.1 Skill, experience, and resources all matter, and they matter most when markets are complex and challenging.
Read the full article here by KKR
