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Private Equity Outperforms Public Equity by 4%
Equity markets have seen a dramatic shift from public to private capital in the last decade, something we discussed in a recent Market Digest. And now, our strategic partner, Cliffwater, has published a study demonstrating that private equity portfolios of large US public pensions have earned a substantial 4.0% average annualized return above public equity over a 16 year period.
The Cliffwater study found that private equity produced a 10.7% annualized return across 21 state pensions reporting for the 16-year period covering June 30 fiscal years 2002 through 2017. This is 4.0% above the 6.6% annualized return earned by a global equity benchmark
with similar geographic weights to a diversified private equity portfolio. All state pensions that operated private equity portfolios over the entire 16-
year time period outperformed public stocks, but individual state private equity returns
ranged from 8.1% to 14.3%, signaling the importance of manager selection.
The study also revealed that private equity performance, relative to public equities, was better in bear market periods compared
to bull market periods, though strong excess returns occur in both. This finding runs contrary to
the notion that private equity is simply levered public equity.
As noted by the study's author, Stephen Nesbitt, extrapolating past performance deserves healthy caution, but the 16-year period includes two bear markets and two bull markets. At New Market Wealth Management, we continue to recommend an appropriate commitment to private equity for accredited investors. Contact us if you're interested in receiving a copy of the full study, or learning more about private equity investing.
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Last week stocks had fairly strong returns and now all the major equity indexes are in positive territory for the year. Rather than a major catalyst, it appears small pieces of good news in individual sectors helped to propel stocks higher. The final few first-quarter earnings reports continued to surprise mainly to the upside and FactSet is reporting that nearly 4 in 5 companies beat analysts' earnings and revenue estimates.
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> Oil Prices:
A rise in domestic crude prices provided a strong boost to the energy sector last week. The price of a barrel of West Texas Intermediate crude hovered above $70 for much of the week, the first time it had crossed that barrier since late 2014.
> Earnings Recap:
As noted in the Market Update above, the first quarter earnings season was expected to be strong and it did not disappoint. The S&P 500 Index earnings grew at 26% year-over-year, the best since the fourth quarter of 2010. Even when excluding the impact of the new tax law (estimated at 6-7%), earnings growth accelerated from the prior quarter. A broad range of sectors produced substantial upside surprises.
> Yield Curve:
The yield curve continues to flatten. Last week the spread between 5- and 30-year Treasuries narrowed to as little as 26.2 basis points (0.26%), the lowest since August 2007.
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Like zombies, they stumble down pavements and across roads, oblivious to the world. "Smombies" so named for their obsessive attachment to their smartphones, are so engrossed in
their portable devices, they pose a risk to themselves and others as they stumble into oncoming traffic and
lampposts
.
Worldwide efforts to combat the smombie epidemic now include:
- Development of an app in South Korea that locks a phone if the user walks more than seven paces and only turns back on when they stop completely
- Special sections of pavement in China that is reserved for people using phones and walking at the same time
- Fines in Honolulu, Hawaii for anyone crossing the road and looking at their phone
- Lamp posts are being covered with airbags in Salzburg, Austria in an attempt to raise awareness and stop smombies from bumping into them
- And a British company has designed a system that uses LED lights embedded in the pavement at crosswalks. These warn pedestrians about to step into the road, and also alert approaching drivers.
Texting while walking is especially risky in urban areas, and when combined with drivers who are using their phones or touchscreens while driving, it's a recipe for fatalities. US pedestrian deaths totaled nearly 6,000 in 2017, so it's likely we'll begin to see similar types of safety measures being implemented here at home.
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New Market Wealth Management offers modern investment solutions backed by extensive research and experience serving the needs of wealthy families. Through our strategic partnership with
Cliffwater LLC
, we have access to institutional-quality research, investment due diligence and asset allocation tools. We believe this level of experience and unique access to in-depth, sophisticated research are essential for success in today's complex world markets.
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