Private equity fund performance

In the past the performance of private equity funds has been relatively difficult to track, as private equity firms are under no obligation to publicly reveal the returns that they have achieved from their investments. In the majority of cases the only groups with knowledge of fund performance were investors in the funds, academic institutes (as CEPRES Center of Private Equity Research) and the firms themselves, making comparisons between various different firms, and the establishment of market benchmarks to be a difficult challenge.
The introduction of the Freedom of Information Act (FOIA) in the United States and other countries such as the UK in the early 21st Century, has led to performance data for the industry becoming more readily available. It is also possible to view private equity performance data directly on the websites of certain investors.
The performance of the private equity industry over the past few years differs between funds of different types. Buyout and real estate funds have both performed strongly in the past few years in comparison with other asset classes such as public equities, certainly a factor in the bumper fundraising that both have enjoyed of late. In contrast other fund types such as venture have not shown such a strong overall performance. Manager selection in the private equity industry is definitely a vital factor for any investor seeking exposure to the market, with the performance of the top and bottom quartile managers varying dramatically, especially so in the high-risk venture capital world, and less so with real estate funds for example.
However, it is challenging to compare private equity performance to public equity performance. One method is the Long and Nickels excess IRR measure, which is not reliable. Another method which is gaining ground in academia is the public market equivalent or profitability index. The profitability index tells you how much you would have to invest in the public market (given its returns) to earn the same as you did from your private equity portfolio. See Phalippou and Gottschalg's 2007 paper, "The Performance of Private Equity" [1] for an overview of the profitability index.

[edit] Liquidity in the private equity market
The private equity secondary market (also often called private equity secondaries) refers to the buying and selling of pre-existing investor commitments to private equity and other alternative investment funds. Sellers of private equity investments sell not only the investments in the fund but also their remaining unfunded commitments to the funds. By its nature, the private equity asset class is illiquid, intended to be a long-term investment for buy-and-hold investors. For the vast majority of private equity investments, there is no listed public market; however, there is a robust and maturing secondary market available for sellers of private equity assets.
Driven by strong demand for private equity exposure, a significant amount of capital has been committed to dedicated secondary market funds from investors looking to increase and diversify their private equity exposure.