This content is from: Innovation
Citi: P.E. Not All It’s Cracked Up To Be
Leading private equity firms may be deluged with inflows, but a new report by Citigroup suggests there are easier and cheaper ways for investors to enjoy top performance from their holdings.
Leading private equity firms may be deluged with inflows, but a new report by Citigroup suggests there are easier and cheaper ways for investors to enjoy top performance from their holdings. Analysts at Citigroup found that investing in a basket of mid-cap European stocks generated returns similar to the p.e. firms 37% annually over a 10-year period for the private equity firms, vs. 38% of the mid-caps. The report offers another stunning statistic: Over a three-year period, generally regarded as the standard for private equity investments, returns hovered around 20%, while investments in European stocks soared 79% and portfolio of U.K. companies moved up 54%. "Our analysis suggests that even the best buyout fund returns lag those from a similar strategy applies in the public equity market," the Citigroup report stated. According to Financial News, Citi picked its basket of 25 cheap mid-cap stocks at the beginning of the year, choosing companies with "high free cash flows and leverage below 40%" a common p.e. investment strategy. The Citi group also applied standard p.e. leverage of 25% equity to 75% debt. The analysts concluded, "Shifting capital and corporate ownership from the public to the private equity world will create big fees for financial intermediaries but the loser will be the pension fund, insurance company or retail investor who is the owner of that capital."