According to the Examining the Returns: The Financial Returns of Diverse Private Equity Firms report, diverse-owned private equity firms outperform benchmarks when compared on investment performance. The most recent study was developed by the National Association of Investment Cos. (NAIC), “a trade group with over 40 member firms representing over $85 billion in assets managed.” According to the NAIC report, diverse-owned firms “generated a net of fee Internal Rate of Return (IRR) of 16.15% for the 10-year reporting period ending in December 2015, versus 11.3% (IRR) for the Cambridge US Buyout benchmark for the same period. The data included the financial performance of 39 funds from 17 NAIC firms.”
This is the second time in six months that a study has supported the benefit of minority owned private equity investing. It also updates a 2012 study, confirming the resulting of over performance among diverse companies within the private equity industry. “Both conclude that superior performance has led to increased capital flowing into these firms, led by New York Common, Texas Teachers Retirement System, Texas Employees Retirement System, New York Teachers Retirement System, CalPERS, CalSTRS, Verizon, Exelon Corp., and the Virginia Retirement System.”
The report also highlighted a few additional facts including;
- Diverse PE Funds included in the NAIC Diverse Private Equity Index outperformed the median Cambridge U.S. Private Equity funds during most vintage years.
- On an IRR and Multiple on Invested Capital (MOIC) basis, Diverse PE Funds outperformed 62.5% of the time.
- On a Distributed to Paid-in capital (DPI) basis, Diverse PE Funds outperformed 56.3% of the time.
Despite the positive numbers for diverse firms, in the AUM asset management fund less than 10% of an investor’s total investable assets were trusted with these companies. When the change will be made for more dollars trusted in diverse private equity companies remains to be seen, but with years of statistics backing these funds a change may be on the horizon.