4 Nov 2024
The Enigma of Private Equity Performance, Data and Strategies
Private equity funds are notoriously secretive about their data and strategies, and this technique is rooted in the core principles of their success.
One of the main reasons behind this approach is the nature of their “buying to sell” investment strategy. Private equity firms aim to acquire businesses, implement rapid performance improvements, and then sell them for a profit. This strategy allows them to realize short- to medium-term value creation opportunities.
The secrecy surrounding their data and strategies serves several purposes:
- Firstly it safeguards their competitive advantage. By keeping their methods and insights confidential, private equity firms maintain an edge over competitors in identifying undervalued or underperforming businesses and executing successful turnaround strategies.
- Secondly, it allows them to operate without market scrutiny or interference. Unlike publicly traded companies, private equity firms are not bound to shareholders or regulatory reporting requirements, allowing them to make strategic decisions without external pressures.
- Lastly it helps to preserve the confidentiality of their investments and potential deals. Public disclosure of sensitive information could jeopardize negotiations, affect market perceptions, or lead to increased competition for lucrative opportunities.
By keeping a low profile, private equity firms can operate discretely and capitalize on opportunities without attracting unwanted attention. In essence, the secrecy surrounding private equity firms' data and strategies is installed into their business model. It enables them to operate efficiently, maintain a competitive edge, and maximize returns for their investors.
Unveiling Performance Insights: A Glimpse into the Inner Workings
In the intricate reality of Private Equity, accessing basic data represents a major issue. GPs guard this information with extreme secrecy, but a few listed GPs disclose their insights, giving us a peek into this exclusive domain. Through SEC filings and disclosures, these firms offer rare insights into their performance metrics, providing valuable material for industry analysis.
Each quarter, these firms disclose earnings related to their primary investment areas, offering crucial insights into their strategies. This transparency is highly significant in understanding their operational approaches and investment decisions.
Information on private markets performance is usually disclosed in the earning calls slide decks. These are easily accessible through the listed GPs’ Investor Relations websites. For example, looking at the leading listed GPs, you can find the presentations at the following links:
- Blackstone: here, filter by Shareholders > Latest earnings
- KKR: here, filter by Investor relations > Earnings release
- Apollo: here, filter by Financial results > Earnings release
- Carlyle: here, filter by Shareholders > Earnings release
Looking at Q1 2024 private markets performance
So what private markets performance transpires from the latest rounds of reports?
Blackstone:
In Q1 of 2024, Blackstone reported robust earnings across its diversified portfolio of investment strategies, with Corporate PE delivering 3.40% returns, Infrastructure PE achieving 4.80%, Secondaries PE yielding 2.20%, and Tactical Opportunities PE generating 2.10%. These results highlight Blackstone's adeptness in navigating dynamic market conditions.
Source:
https://www.blackstone.com/wp-content/uploads/sites/2/2024/04/Blackstone1Q24EarningsPressRelease.pdf
KKR:
Similarly, KKR reported strong earnings, particularly in private equity, achieving a notable 5% return, showcasing its consistent value generation.
Source: https://ir.kkr.com/app/uploads/2024/05/KKR-Q124-Earnings-Release.pdf
Apollo:
In contrast, Apollo Global Management's earnings were mixed, with European Principal Finance equity yielding 0.20% and Flagship equity achieving 2.80%.
Source:
Carlyle:
Carlyle's earnings varied across its portfolios, with Corporate Private Equity stagnant at 0% and Real Estate Private Equity showing modest growth at 1%, demonstrating resilience despite challenges in certain sectors.
Source:
https://ir.carlyle.com/static-files/a991f360-3394-4939-896e-2a94be97bc5a
Getting the full picture
While it is interesting to get into the details of each GP’s investment strategy, to get an overall sense of direction of the market it’s helpful to calculate averages by asset class. A challenge is that GPs classify strategies based on different criteria - but it is possible to reclassify the strategies based on reasonable assumptions and calculate average ranges.
Looking at the data mentioned above, for instance, we can reclassify the strategies based on the following grid:
