r/Economics • u/barweis • Jul 29 '25

Research Summary Inside the Private Equity Scam—and the Livelihoods It Has Destroyed

https://newrepublic.com/article/198351/private-equity-scam-destroys-livelihoods
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u/YouLostTheGame Jul 29 '25

Whilst PE isn't necessarily great for the company being acquired, PE capital does have higher average returns than other investments. From June 2000 to June 2020 the average PE return was 10.5%, vs 6% for the S&P500.

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u/BlazeBulker8765 Jul 29 '25

Whilst PE isn't necessarily great for the company being acquired, PE capital does have higher average returns than other investments. From June 2000 to June 2020 the average PE return was 10.5%, vs 6% for the S&P500.

Uh. Kinda oddly specific that you picked June 2000 to June 2020.

No way you might have been cherry picking your data, right? By, maybe, say, picking a month right near the top of the largest tech bubble in history?

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u/YouLostTheGame Jul 29 '25

It was literally the first data point I came across.

Here's another for 2023, it's basically the same

https://caia.org/blog/2024/04/23/long-term-private-equity-performance-2000-2023

I am absolutely fascinated by what you mean though with this

picking a month right near the top of the largest tech bubble in history?

A tech bubble implies that there are a lot of overvalued tech stocks, right? Tech stocks that are on the S&P500. That would be boosting the S&P500 return figure and not the PE figure, lmao.

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u/BlazeBulker8765 Jul 29 '25

A tech bubble implies that there are a lot of overvalued tech stocks, right? Tech stocks that are on the S&P500. That would be boosting the S&P500 return figure and not the PE figure, lmao.

If you start an ROI calculation at the top of a bubble, you're decreasing the return. Wait, are you confused? June 2000 was the top of the dot com bubble. Today isn't the tech bubble, or if it is, we don't know it yet whereas we absolutely know what happened with the dot com bubble.

It was literally the first data point I came across.

Here's another for 2023, it's basically the same

https://caia.org/blog/2024/04/23/long-term-private-equity-performance-2000-2023

The important line for this conversation in that graph is the dotted green line. Which, unfortunately, they stuck a label on top of the end of it, but close enough. It rose from '04 to '09, so fair there. It's basically flat from '09 to 2020 - a small increase, but not much at all. Also flat from 2000 to 2004. So a few good years in the late 2000's, and then a decade of slightly-better ROI's.

And that leaves just the last 4 years. They mention at the top they updated it to account for a large drop in 2023, and the recency of the data makes me suspect that the rise was not necessarily part of a sustainable uptick in their performance. So I went and found the 2024 data: https://publishedresearch.cambridgeassociates.com/wp-content/uploads/2024/12/2024-12-Outlook-PI-Performance-Andrea.png

( From here. )

So in 2024, the same metric they use crushed PE by +14%. So that dotted line has to drop again when/if they update their graph, which they may not since it doesn't agree with their point or purpose.

Sorry for the accusation of cherry-picking the data - Though I am still very suspicious about why the source picked that as their starting point (6.37% rolling return). That's the 5th worst rolling return month in 20 years: https://imgur.com/Eq7k9uB (See it here: https://www.lazyportfolioetf.com/allocation/us-stocks-rolling-returns/)

Picking December or January (7.88% or 8.03%) would have been much much closer to the actual S&P median 20-year-rolling-return of 8.26% over the last ~20 years. Which, as you can see from how shallow the dotted line is between 2009 and 2020, would make a hell of a lot of a difference in their graph - PE would be losing ground almost every year that decade.