Home > Free Essays > Economics > Investment > Returns of Private Equity Funds vs. S&P 500
Cite this

Returns of Private Equity Funds vs. S&P 500 Dissertation


This paper explores the returns of private funds and the returns of the S&P 500, to ascertain which returns are more favorable for investors for investing. The study will make use of quantitative research methodology in the collection of the required data for use in making comprehensive conclusions on which returns are better.

For this reason, a survey would be appropriate in carrying out the research and collecting the required information. Empirical findings have shown that returns from private funds have some edge over the returns of the S&P 500. Despite this, researches in this area are limited, and thus there is a need for more comprehensive research to bring out the varied differences between returns of private funds and returns of the S&P 500.


There are several factors that investors have to consider before making any investment decisions. One of these factors is the number of returns to expect from the projected investment capital. As such, it becomes highly important to evaluate investment options that have a high rate of return on invested capital. According to a study carried out by Redhead (2008), investors can consider the profitability of index funds against private equity funds in terms of the returns. However, most investors are likely to make poor investment decisions in cases whereby they lack the necessary information about various investment opportunities. Over the past decades, a lot of concerns have been raised over the behavior of stock prices, private equity funds and the Standard and Poor’s 500 stock index often abbreviated as S&P 500.

There has been a common belief that firms listed in the Standard and Poor’s 500 price index benefit from an increase in stock price that is permanent implying that they enjoy a permanent rise in returns on invested capital. Nevertheless, recent studies show that there is a significant relationship between the event window and the size of price reversal, whereby a longer event window results in a larger price reversal (Jones 2009). Evidently, the returns for the S&P 500 are not permanent due to the interplay of financial factors and changes in market conditions.

On the other hand, private funds have become popular in financial and economics literature. Private equity funds have grown significantly over recent years. For example, there was an increase in private equity funds in the US from $5 billion to $300 billion between 1980 and 2004. Even though private equity funds are considered a good example of major classes of financial assets, there is limited literature on how such funds perform in terms of returns. This paper provides a research proposal for the study analyzing the returns of private equity funds and S&P 500, in an attempt to compare the two types of funds in terms of their returns.

Information on the private equity efficacy of private equity acquisition assets criticizes equity and decisively affects how ROI is measured. The private equity business has long depended on the interior rate of return (IRR) as its principal private equity efficacy extent, but that metric has been extensively condemned — not just in the theoretical investment community but among organization consulting companies, too. Utilizing the interior rate of return makes funds look much more superior than they are.

Contrary to private equity common associates, the majority of investment economists evaluate stock private equity efficacy utilizing an indicator titled public market equivalent. This indicator equates revenues from capitalizing in private equity with incomes from analogous investments in the stock marketplace, as evaluated by the S&P 500 or other typical marketplace keys. This indicator offers the limited partners consistent evidence on two things. First, how much money they recuperate at the end of their venture in a private equity deposit comparative to their original outlay.

Second, how that matches the profit, they would have produced if they had capitalized in some other benefit as an alternative — for instance, in the businesses that practice in the financial market. The representative decade-long lifespan of a private equity stock means that the genuinely recognized revenues cannot be identified until the stock is discharged after a decade.

Depositors, on the other hand, are concerned to identify how the assets are carrying out every year. To identify the performance, private equity broad-spectrum companions estimate yearly stock private equity efficacy founded on short-term assessments of non-wholesaled group businesses. Therefore, real revenues apprehended by the LPs when the stock is discharged may be deficient of provisional approximations.

Company Overview

Gulf Islamic Investments LLC (GII) in the United Arab Emirates-based Private Company offering financial and investment services. The Company came into existence in the year 2004. The company’s operations are regulated by the Emirates Securities and Commodities Authorities (ESCA). GII has existed for several years now. The company was founded by H.E Mohammed Ali Rashed Al-Abbar and other Arabic entrepreneurs.

Gulf Investment company deals with a number well researched, risk mitigated and well-documented investment opportunities in private equity, venture capital, infrastructure and real estate on a global scale. GII enjoys recognition and respect within GCC and all over the world, especially where it has significantly impacted its clients. The company has made itself a profound name over the identification of opportunities and assurance of higher and quality consistent returns to its customers.

This analysis looks into what the company partakes in, various investments and financial records over the last few years that it has been existing. Information obtained in the analysis thereafter is available from the company website. Financial reports and company announcements have been seeking to learn more about GII has an investment company.

Brief History of GII

GII roots from two companies, established over a decade ago. Union National Consultancy Company (Pre-GII) which was rather renamed to GII and Allied Investment Partners were established to aid manage and provide advisory over private assets owned by a member of the Abu Dhabi Royal Family (GII, 2016). Some changes have been adopted after the transformation to GII that will be discussed in this analysis.

Under the leadership of a group of prominent shareholders and committed entrepreneurs, the company boasts a track record of managing assets worth US$ 2.5 Billion, US$5.5 billion of secured debt, and an excess of US$1.0 billion in equity and M&A financing.

Activities Performed by GII Company

Gulf Islamic Investment Company offers management services concerning investment throughout their life cycle. With experience experts, GII has proved competence in providing the following specific services in the investment life cycle. Services within active management are tailored with the aim of outperforming passive index funds and attain the best performance. Successfully employing active management is still a challenge to some experts. However, this is not the case with GII, considering its existence in the industry today. The challenge is even more complex considering the nature of Islamic Financing.

By not restricting performance within the established guidelines, active management services offered in GII has helped investor mitigate risks through real-time strategies. Investors aligned to GII have been able to reduce exposure to banks that are considered to be offering risky ventures.

GII thrives in Equity Funding. The company holds an upper hand when it to raising equity funds. With a well-networked relationship with its shareholders, strategic partner, investors and clients within the GCC and all over the world, GII does not find a challenge with raising capital. In return, our investors within GII exploit opportunities in increasing stock ownership. This is a cheaper approach that benefits both investors and companies seeking equity funding, thanks to GII. The company deals with a minimum of $10 million capital which can be sourced and transacted within the shortest time possible.

GII deals with debt financing. The company prides an extensively experienced team in banking. The banking team operations are regulated concerning the Shari’-ah compliance requirements about debt financing. Financing debt entails acquisition finance, project finance, working capital finance, loans and corporate loans sourced from both local and global lenders.

GII offers advisory services to its clients. A team of experts in corporate finance helps clients and portfolio companies make the decision. Financing strategy advisory entails decisions in the form of finance a client can seek, keeping in mind the cost of sourcing, payment as well as its availability. Operating in a keenly regulated commercial environment, the company offers advisory services on balance sheet optimization. Clients to GII are in the best position to maintain profitability by well utilizing their assets without overlooking existing regulations. An institution facing temporal liquidity issues as well as challenges in determining or making a decision based on the cost of capital reduction can also seek both services and advisory from GII’s team of experts.

Companies or businesses cannot exist without a deal. GII stands in between prospective business owners and capital providers. With its versatile group of capital owner and potential suppliers, this may be the easiest task that the company perform with pride. Once a business comes into existence and a sound business plan is established, there arises a need to implement the plan.

Implementing a business plan is also referred to as project incubation. GII provides project incubation services. They entail implementing plans, providing management, financing, establishing relationships, help formulate a board of governors and recruiting operations and executive staff.

Compliance with Islamic Principles

As the name suggests, the company is found on Islamic principles that govern financial activities Islamic principles aim at fostering social and financial objectives about the Sharia Law. GII is obliged to follow regulations as stipulated within Islamic principles. GII employs experts to source, assets, structure and certifies investments that comply with guidelines of Islamic Finance. GII places weight on investments that are GCC relevant.

Investment Focus

GII focuses on the demands and the desires of its shareholders and investors. This should be striving for every company or organization. To ensure performance as well as steady growth, GII advocates and adopts original investment ideas. Such ideas are superbly natured with great managerial capabilities and well-crafted and proofed operation models. The company has successfully implemented these ideologies, rooting from pre-GII organization. GII has managed to invest in the following areas successfully, as discussed under each investment focus.

Private Equity

GII looks for unique equity investment opportunities in all sectors of private equity: expansion capital, turnaround, buyout, special situations. GII offers financial stability at all points of company operations. The company partners with all forms of management: old and new management. In some circumstances, GII establishes new managerial arrangement, biased to its organizational goals and objectives. The company finds it attractive to partner with strong partners, to establish a kind of relationship that will be affirmed with outsourced expertise to improve investment value.

GII assumes a life cycle approach that entails active management as from the entry point to the point of exit. Increasing investors’ return is the core operating principle of the company. Thus, GII is quite selective on the type of industries to engage investors’ contributions. The company has pointed out some of the sectors that it considers synergetic based on growth trends. Manufacturing, retail, transportation and logistics, health, education, conventional and renewable energy, technology, financial services, and industrial sectors are just part of what the company views as investable sectors of the economy.

Real Estate

Real estate is a boom, and nobody imagines an investment company like GII to be lagging when it comes to investing in real estate. However, GII’s investment style is unique and profit-oriented. The real estate industry is more than dynamic, there exist several ups and downs that make it hard to determine the feasibility of such an investment. GII doesn’t deem such responsive investments to be viable. With every unique opportunity, characterized by steady cash and high capital protection, GII is ready to grab it.

The company boasts a perfect information flow, which is crucial in making decisions about real estate investment. For example, GII is less likely to invest in real estate that are characterized by high tenant turnover. Such kind of information requires that GII knows well its tenants and responds with readily available temporary or permanent equity. To be able to mine such specifically structure investment opportunities means that the company ought to place its targets beyond the GCC.

It is for this reason that GII positions itself as an equal partner to worldwide renowned developers that deal with large-scale commercial and residential projects. In June 2016, GII announced an acquisition of a Class-A Commercial Building in ‘3501 Corporate Parkway’ Pennsylvania in the United States of America. Constructed in the year 2006, the building stands on a 60,000 square feet plot of commercial land. The building cost GII investors and partners, 48 Million Dollars with part of the acquisition being funded by a loan obtained from a reputable bank.

According to the Company’s media report released in June 2016, the building is rented out to Dun and Bradstreet Corporation. The company views this breakthrough as the beginning of spreading its operations in the United States as well as the United Kingdom. In a statement made by Co-Founder and Co-CEO, Mohammed Al-Hassan, it can be derived that the company has developed enough stamina to take on mature investment markets like in the United States of America. GII focuses to spread even further.

There are underway plans to expand the real estate market in Europe, and Germany. According to a statement by the company’s cofounder, Pankaj Gupta, development opportunities in the European region are yet to be fully exploited by the GII. Even though the company seeks to conquer foreign markets, there lies a lot of potential in the UAE’s real estate market. Specifically, in Dubai, market prices are showing signs of stabilization, which is conducive for investors to thrive in.

In Dubai alone, real estate transaction volumes have increased by 50% over the last one year (Augustine 2014). The market, however, has not performed beyond peak sales reported in 2008. Financial analysts in the UAE believe that foreigners are contributing to the poor performance of the real estate market. While national companies like the GII will carefully trade through risk to grow and maintain their investments, foreign investors in the UAE are willing to undertake big risks and dispose of their investments in case of underperformance.

This phenomenon has a general effect on the performance of the company. There lies every reason why GII is biased in investing within the UAE as opposed to foreign markets. UAE’s economy is experiencing healthy growth, hence supporting development in sections of the economy like the real estate. Even though economic turmoils are evident, there is a lot of positive news slow to lean to (Kabel 2014). In May 2015, GII announced the acquisition of a staff accommodation building in Dubai Investment Park.

The 241 room property cost GCC investors 50 Million USD (Kabel 2014). Mohamed Al-Hassan, the Co-founder described the investment as a low-risk asset characterized by a high yielding potential. As it is the tradition of the private company, investors’ returns remain a paramount concern. Putting into risk investors’ contribution is not part of what GII operates on. Mr. Mohammed noted that the Dubai Investment Park acquisition is expected to yield a total of 46% Return on Investment (GII, 2015, p. 2). If the actual return surpasses the figure stated before, efforts by the company’ board of management are highly commendable.

Venture Capital

GII prefers to launch new projects from the ground as much has it finds well-established ventures attractive. Getting to invest in profitable ventures requires that a company is well informed of market developments, changes or technological advancements that can present opportunities. GII utilizes this approach to identify a return compelling investment, an arbitrage opportunity, a unique asset to be leveraged, a disruptive business model or proven technology.

Focusing on technology, innovative projects that employ technology to reduce risk or de-risked in nature offer investment opportunities especially in the early stages of establishment. However, some companies offer opportunities for investment in their late stages of growth. For example, when a company breaks into international markets, there are perfect opportunities. GII considers exploiting such an opportunity for example in establishing manufacturing, commercial, distribution, or franchise businesses.


Infrastructure is the backbone of every economy. Being part of infrastructure development gives a company a major presence in the economy. In every target market, there arises a need to develop infrastructure and contribute to the GDP of companies. GII focuses on improving infrastructure in several sectors of the economy in its target markets. The following infrastructure sector is of interest to GII. In transport and logistic, roads, ports, and logistics hubs are the kind of infrastructural investment that GII shows interest in.

Social, and tourism infrastructure are also sectors that show attractiveness to GII investment focus. Just like real estate, the company finds the need to invest in other regions beyond GCC. GII has established a reputable relationship with institutional and private investors. GII has invested in infrastructure, specifically in Africa. The economy of Africa continues to lag because of several reasons and one of them being poor infrastructure. According to September 2015 press release, GII has been able to extend its operations into Africa.

GII Tech

GII‘s venture fund, GII Tech is primarily based in the United States. This segment deals with the technology domain for the company. GII Tech is leaned unto innovation. In March 2016, GII announced Series D funding for Valancell. Valancell deals with biometric sensor technology. Valancell hopes to continue with its innovations on wearable biometric devices. As a company, Valancell has continued to experience growth in demand for its highly accurate biometric sensor technology.

The company enjoys high growth rate with 2015 marking the second time for a consecutive triple-digit growth. According to Pankaj Gupta, CEO at GII, Biometric sensors have become fundamental features in the wearable and hearable devices. Valancell has already established itself as a competent innovator in biometric sensors.

As early stated, Valancell has received significant funding that will go far into supporting growth objectives to exploit the growing market demand. One of the most recent technological advancements for Valancell is Bio-Pack (GII TECH 2016). This innovation presents ready to integrate Perform Tek technology. Of relevance to this analysis is the new investment dynamic that GII is moving into. It is evident from the above analysis that biometric sensors transactions stand to benefit Valancell as well as GII’ Tech.

Away from the above-discussed investment areas, GII has thrived in other crucial sectors like Education. In a newsletter published in 2014, GII management terms education in the GCC, MENA and Africa a major societal and economic challenge currently and decades to come. Education has been linked to several economic challenges in the above-stated areas. In GCC, the rate of unemployment is rapidly increasing, and the major reason being limited education opportunities with the young population.

To address the situation King Abdullah of Saudi Arabia accredited an educational plan worth more than 21.33 Billion Us dollars (GII 2015). GII has also partnered with C Education and Technologies, a company leading in end to end; technology-enabled education solution providers operating in primary, secondary and tertiary levels of education. The partnership agreement entails education in general financial advisory, promotional of CORE’s business and corporate development in MENA and Africa.

A press release report as on May 18, 2015, hinted at the company’s interest in GCC Food Production and Food Service Industry. Executives in GII consider the food industry to be a profitable venture that is constantly growing tremendously. The food industry in GCC is backed up with the food ingredient trading industry. The company hopes to establish food retailing points in GCC and also to buy out existing food ventures. Being a funding company, GII will offer equity to promising food processing companies.

The food industry promises another investment sector for Gulf Islamic Investment Company. By September, 13 of 2015, a press release by the Gulf Investment Company hinted on a closed deal following reports on acquiring of MIF Inc. The Company is reputed for its successful establishment of UAE’ casual dining restaurants. MIF boasts ownership of More Café and Little More casual dining restaurant brands. Following the acquisition by GCC investors with the advice of GII, Mohamed Al-Hassan applauded the food industry.

The CEO and co-founder described the food sector as one that offers investment immunity (GII 2015). It can be interpreted that the company seeks diversification to avoid poor performance in the event of challenging economic times. Mohamed hinted at plans to expand operations for both More Café and Little More regionally. With a team of world-class business moguls, the board of directors is entrusted to oversee performance on international scales. As discussed above the company identifies opportunities that are viable and strives to develop profit for its investors.

The company has recently identified a shortage of gas cylinders in the GCC. According to a company report, the demand for gas cylinders is set to increase from the current 17 million gas cylinders demand to 20 million by the year 2020. There arises a need to increase production capacity for gas cylinders in the GCC. The demand for gas cylinders is on a worldwide scale.

Strategic positioning of the GCC as well as the natural potential to produce oil presents a viable opportunity that the GCC should exploit in time. To ensure profitability from the upcoming gas supply by the GII, new technological gas transportation means will be sought. The company hopes to employ virtual transportation means, which are much cheaper as compared to traditional transportation.

Pie Chart Showing Transactions Closed by GII.
Figure 1: Pie Chart Showing Transactions Closed by GII

The above analysis involves several of the transactions close by the company. The pie-chart shows transactions closed regarding asset acquisition in the amount of acquisition.

The following transactions are in progress.

Coastra Oasis- Luxury Retail warehouse Undisclosed Amount
Tadwir-E 60 million Dollars
Building Material Company 19 million Dollars.

Figure 2: Transactions in Progress


From the above analysis, it is evident that GII is expanding its territories beyond GCC. It is stipulated to increase value for investors considering the new sectors that the company has opted to thrive. Several observations draw interest as one goes through the company analysis. The first one is how Gulf Islamic Investment has managed to diversify its portfolios. Ranging from technological investments to the food industry, the company seeks risk reduction. Worthy to note is how GII guards investors” investment.

Even though opportunities are openly resentful for the company to seek both in the UAE and international markets, the Company focuses on the risk level and returns on investment. Interestingly, the company through its management team manages to identify probable investments and duly advise its investors. Even though the company needs to extend its operations into the international real estate and other markets, UAE bears unimaginable potentials. The economic performance of the UAE for the last few years indicates that real estate and other sectors are yet to reach their potentials.

Research Question

A research question will be important in the investigation of returns of both the private equity and the S&P 500. As such, the study will use the following research question to help in achieving the study’s objectives: Which is the better investment management strategy between S&P 500(index funds) and private equity funds for the investors?

Research Objectives

Based on the research question outlined above, the study will seek to fulfill the following objectives:

  1. To determine which is more effective for investment between S&P 500 index funds and private equity funds.
  2. To find out the advantages and disadvantages of private equity funds.
  3. To find out some of the advantages and disadvantages of S&P 500 index funds
  4. To examine the returns of investing in either private equity funds or S&P 500 index funds.

Literature Review

The focus of the study will be on the returns of private equity funds and the S&P 500. As such, this section of the paper will provide an in-depth review of related literature on the phenomenon under study to ascertain which of the two is likely to have better returns. To achieve the objectives of the study, various studies will be reviewed. As such, the literature review will be based on key concepts, theoretical research, and empirical studies to critically examine all aspects of private equity funds and S&P 500 index funds.

The current literature review dwells on the peculiarities of private equity and S&P 500, contrasts them and compares them in terms of their relation to the market and profit levels. This review provides relevant information on the current issue and helps understand the existing trends. Private equity (PE) is possibly the one benefit class to have practically regularly outclassed the S&P 500 during the last twenty years.

A past performance like that is impossible to overlook. Therefore, private equity firms are currently a $40 billion-a-month trade that has become a giant, notable aim. The business encounters several trials from retirement funds and coverage businesses, which are amid the major stockholders or limited partners (LPs). Some limited partners are attempting to convey more profitable contract terms, resultant in lesser disbursements to the PE associates. A limited number of others are attempting to remove private equity firms from the business image completely and make turn-around funds themselves.

One of the major problems upsetting the trade comprises the limited partners’ hard work to get the most out of the private equity under more promising negotiations, basically by eradicating PE companies as the retailer. Presently, private equity organizations, like companies in venture capital, regularly charge a couple of dissimilar payments. The foremost – a fixed fraction of the overall quantity under administration. The subsequent – a part of incomes made from a contract, succeeding a withdrawal (auction of a portfolio establishment by the private equity firm), assuming those incomes reach a convincing brink.

Private equity funds

Investors of private equity funds carry out their investments via a partnership structure that is limited and whereby the general partner is the concerned private equity firm. In this kind of an arrangement, the limited partners are wealthy individuals and institutional investors whose primary responsibility in the provision of capital. In return, the general partner carries out various investments using the committed funds. Often, the limited partnership under the class of private equity funds has a finite life, after which the general partner is required to acquire subsequent commitment funds.

According to Jones (2009), private equity returns can be categorized according to individual investments’ economics in any given company. The volatility of the returns decreases with stages (Shankar 2007). Nevertheless, most private equity deals are affected the macroeconomic conditions as well as the level of competition experienced in the private equity funds industry, and subsequently, affect the level of returns from investments involving private equity funds.

There has been tremendous growth in the private equity sector, especially venture capital over recent years. For example, the empirical literature shows that there was less than $10 billion in terms of commitment among investors within the private equity sector in 1991. However, nine years later, over $185 billion were used in private equity funds (Jones 2009).

Such a high increase in the amount committed by investors can be attributed to the availability of abundant information on returns from many private equity funds. Even though private equity funds have a heightened rate of returns, a fact that has increased the popularity of this type of asset class, information on the dynamics of private equity is scarce. This scenario has been heightened by the unavailability of the necessary data because most private equity firms do not disclose their information to the public as in the case of public firms.

Although private investments have a low volatility when compared to the public equities, they exhibit a high performance. There are various categories of private equity investments and thus can be categorized as public-traded equity investments’ complementary or even as supplementary to other types of investments. The success of private equity investments in the future cannot be evaluated based on past performance (Shankar 2007).

The application of private equity funds as either supplementary or complementary investment brings the possibility of reducing the volatility of the overall investment portfolio by either setting up suitable avenues to maintain or improve returns. As pointed out earlier, the percentage of returns received from any private equity investment is affected by actual circumstances. This is attributed to the fact that the private equity asset class is not homogeneous.

In 2013, Fevurly researched the private equity market and drew several conclusions concerning the current standing of the trend and its future implications. The range of private equity and PE reserves is hypothetically very profitable (representing the probability for tremendously high revenues) but awfully perilous (not for the weak companies) (Fevurly 2013).

Private equity commonly purchases distraught private (non-visibly dealt) commerce, positions them in a deposit accessible to affluent stockholders, and tries to recover those businesses monetarily before showing them to the public — that is to say, appealing to the initial public offering (IPO) of the stocks (Fevurly 2013). A section of private equity companies similarly capitalizes in start-up dealings and is identified as project businesspersons.

For the reason that distinct stockholders in private equity assets are principally qualified stockholders (stakeholders with a net worth of no less than $1 million, not including home fairness), it is suitable that private equity and private equity funds subsidize the theme of masterfully allocated resources for the depositors of high-net-worth organizations (Fevurly 2013). As a consequence of the scarcity of specific depositors with the mandatory investment to supply the PE and its reserves, the business chiefly is contingent on official investors, such as retirement funds, to deliver wealth.

Standard and Poor’s 500 Index funds (S&P 500)

The Standard and Poor’s 500 funds refer to an index that comprises of some of the largest companies in the U.S that are either listed on NASDAQ or the New York Stock Exchange. The eligibility of any company to be in the S&P 500 index is determined by the company’s level of market capitalization. In the U.S, the Standard and Poor’s 500 Index funds are used to measure the level of the equity market in the country.

Investors in S&P 500 Index funds enjoy the privilege of establishing major allocation in equities since such funds have the ability to replicate the performance and operations of benchmark Index through investments in constituents of S&P 500 that have equal weights in the market.

Basically, the S&P 500 make use of the passive investment approach. As such, the S&P 500 is passively managed and depends on the conception that the market is efficient, and the stock would always operate at a fair price which might reflect all available market information. Therefore, the passive manager would not look into the individual firms or securities. According to Hebner (2006), a passive fund manager holds all the bonds and stocks in a specific market, and they do not invest by tasking personal judgments or analyzing market forecasts.

Thus, an index fund or a large-cap passive fund can hold all 500 stocks in the S&P 500 Index as the manager only makes adjustments to the fund for reflecting changes in the index. On the other hand, Shankar (2007) stated that very low fees are associated with the S&P 500 as there is no requirement to assess the securities in the index.

Thus, the investors make their own decision whether to buy or sell the stocks in a specific market. Moreover, investors would have full information about the bonds or stocks that are contained in an indexed investment. Also, since the buy and hold style of index fund does not ensure high annual capital gains tax, it is considered tax-efficient for the investors.

Often, the index funds track an index or a target benchmark rather than searching for winners and hence, lower operating costs and lower fees when compared to private equity funds. By tracking an index, it becomes easy to ensure returns are in line with the overall market performance. Despite this, Roth (2010) pointed out that index funds are risky. This is attributed to the fact that the entire market is tracked by the index funds implying that if there is a fall in the overall bond prices or stock, then there would be a decline in the index too.

In 2011, Green and Jame researched to scrutinize the trades of key capitals and additional organizations accompanying the S&P 500 index add-ons. They found that index capital began re-harmonizing their selections with the declaration of configuration deviations and did not completely formed their positions up until weeks after the actual day and time (Green & Jame 2011).

Swapping away from the actual date turned out to be more dominant for the frameworks with lesser indicators of liquidity and amid great index capital, which was in line with the index capital longsuffering a sophisticated tracking fault to drop the price effect of the trades. Minor and average-cap assets added liquidity to index capital around add-ons and provided ordinary shares with a bigger percentage of the expected liquidity providers causing inferior enclosure earnings (Green & Jame 2011).

Measure the performance and Liquidity

In both the types of managing funds, private equity and S&P 500, the performance is measured by how much return is received by the investors after a set period. It is studied that as the individual manager seeks to outperform market index then the index is set as a benchmark by the managers so that the investors can earn higher returns. However, if the market is not in favor then it may limit the performance of managers to outcast the market (Redhead, 2008). On the other hand, in the case of the S&P 500 investment, the investors focus on matching the performance of the market to gain expected future returns.

Also, the success rate is calculated which indicates that the amount of actively managed funds that generated returns over those produced by the average passive fund in the same period (Swensen 2009). This helps in measuring the performance of both the funds. According to Hebner (2006), despite mixed performance in the recent years, more capital has moved to passively managed funds in 2014-2015 than actively managed funds. In 2015, there was a total of $413.8 billion invested in index funds, which marked a withdrawal of $207.3 billion from the mutual funds.

Also, in 2014, passive US equity fund inflows were $166.6 billion. On the other hand, lack of liquidity in the market may not be an issue for the investors as the general partner ensures that there is effective management of large cash in comparison to the case of index investors (Roth 2010). Additionally, any cash held in terms of bonds can be reinvested, especially in cases when such cash is liquid. In the case of S&P funds, investors are offered passive funds at a low cost to boost their investment.

In 2013, Jenkinson, Sousa, and Stucke assessed the performance of PE funds and the variables that affect the performance the most. The definitive performance of PE assets is only recognized as soon as all reserves have been traded, and the money was refunded to stockholders. This characteristically happens during ten years. In the intervening time, the testified routine is subject to the estimation of the residual group businesses. PE household marketplace is one of the constant funds.

This assumption was made on the base of the provisional estimations of the existing fund (Jenkinson, Sousa & Stucke 2013). In this paper Jenkinson, Sousa, and Stucke came to the agreement that these assessments are reasonable, the scope of conventional or belligerent assessments diverge throughout the lifespan of the supply, and discovered at what phase the short-term performance procedures envisage the definitive performance.

The researchers have as well used the trimestrial estimations and cash flows for the whole history of almost 800 deposit stashes enacted by Calpers – the principal US depositor in the PE sector. There were several main discoveries of the study. Primary, throughout the whole lifecycle of the deposit the researchers found evidence that deposit estimations are conformist, and have a tendency to be flattened (comparative to the activities in free marketplaces).

It was found that estimates minimize the succeeding dispersal by almost 40% normally (Jenkinson, Sousa & Stucke 2013). Jenkinson, Sousa, and Stucke found a noteworthy jump in estimations in the last quarter when resources were typically inspected. Additionally, the exemption to this overall traditionalism was the interval when secondary assets were being raised. They found that assessments, and testified earnings, were exaggerated throughout the fundraising period, with a steady setback as soon as the consequent deposit had been locked.

As an extra, Jenkinson, Sousa, and Stucke discovered that the performance statistics testified by the assets all through the fund-raising had diminutive control over envisaging the final revenue numbers. This was particularly accurate when performance was evaluated by the Internal Rate of Return (Jenkinson, Sousa & Stucke 2013). Utilizing public marketplace comparable procedures had improved the predictability expressively. Their outcomes displayed that the stockholders should be tremendously suspicious of founding venture verdicts on the revenues – specifically Internal Rate of Return – of the existing deposit.

Comparison between private equity and S&P 500

Dunn (2011) noted that private equity investments aim at selecting securities that would outperform the market, thereby gambling across comparatively few securities. The implication is that a wrong choice of stocks would lead to significant underperformance of the involved firm. On the other hand, passively developed portfolios could be more diversified and would enclose thousands of shares/securities allocated among different investment groups ensuring the generation of more returns with lower volatility.

Swensen (2009) opined that in S&P 500, tracking an index would not be safer for the investor as the funds match the upswing in a bull market and money is lost by the investors in a down cycle as they remain stuck to the index despite taking action to decrease risk. In certain niche markets, where assets are less liquid, it becomes hard for investors to buy securities while it is not the same in the case of private equity funds.

The earnings of short-range setback tactics in equity markets can be understood as a substitution for the revenues from liquidity provision. This policy is a robust indicator of the fact that the income from liquidity provision is extremely foreseeable. The VIX index may be used to predict the revenues. Projected incomes and provisional Sharpe proportions from liquidity provision (LP) intensify throughout the intervals of economic market disorder (Green & Jame 2011).

The outcomes indicate the extraction of liquidity stock and an accompanying growth in the anticipated revenues from liquidity provision as the key motivator behind the fading of liquidity all through the periods of financial market chaos, along with the concepts of liquidity provision by monetarily limited mediators. There is also an indication of the fact that some shared assets steadily take the role of contrarian brokers, and produce revenues in the stock marketplace by offering liquidity to the stockholders, although others methodically claim liquidity and experience the expenses of proximity (Green & Jame 2011).

Averagely, the joint funds’ expenses of proximity outdo their revenues from offering liquidity. The capitals with leakages, currents that connect to the trade currents, top marketplace beta assets, and the resources extremely exposed to the impetus approach experience the biggest losses regarding proximity. The joint assets’ usual deficit can be explicated with their costs of proximity. To conclude, the deposits’ past spendings on the proximity envisage their alphas. A shared asset’s stock choice expertise can be disintegrated into supplementary units that contain liquidity-captivating exasperated swapping and liquidity provision (Green & Jame 2011).

It was eventually found that historical performance foresees the forthcoming performance better amid resources interchange in the markets impacted more by informational happenings. Former front-runners get a risk-accustomed post-remuneration extra return of 40 base points each month. The majority of that great performance originates from the exasperated interchange (Green & Jame 2011). Exasperated trading is vital for the funds that are focused on growth, and liquidity provision is the key approach for the newer revenue assets.

Franzoni, Nowak, and Phalippou stated in their 2012 research that PE has conventionally been believed to deliver variation benefits. Nevertheless, these benefits may be lesser than expected as Franzoni, Nowak, and Phalippou discovered that private equity agonized from a substantial contact with the identical liquidity risk aspect as PE and other different benefit categories (Franzoni, Nowak & Phalippou 2012).

The unqualified liquidity danger upper limit is nearly 5% per annum and, in a four-feature classification, the insertion of this liquidity risk upper limit condensed alpha to nothing. Additionally, they indicated the fact that the connection between PE earnings and general marketplace liquidity arises using a capital liquidity channel (Franzoni, Nowak & Phalippou 2012).

Private Equity Liquidity in the Secondaries Market

The typical revenue on bonds with exceptional sensitivities to collective liquidity surpasses that for bonds with trivial sensitivities by approximately 5% per annum. The constructive correlation between the projected company bond earnings and liquidity is vigorous to the impacts of the defaulting and intermittent betas, liquidity extents, and other crucial features, along with the dissimilar archetypal conditions, test procedures, and an assortment of liquidity trials (Franzoni, Nowak & Phalippou 2012).

Liquidity risk is an imperative factor of predictable business bond revenues. The banks that depend more profoundly on the fundamental credit and equity investment backing, which are steady bases of sponsoring, kept on loaning comparative to other banks. The banks that seized more illiquid resources on their profit and loss accounts, on the contrary, improved the resources liquidity and condensed loaning (Franzoni, Nowak & Phalippou 2012).

The liquidity risk appeared on the profit and loss account and forced new credit initiation as an amplified takedown request banished the loaning capacity. The exertions to deal with the liquidity crisis ended up in decay in credit stock.

Private equity deposit liquidity is apprehended by the number of tenders, their discrepancy, and a superfluous demand for a supply interest; all assessed utilizing the sale data offered by a big advice-giving organization (Franzoni, Nowak & Phalippou 2012). Moreover, a private equity supply interest is more liquid if the deposit is bigger, has a takeover-intensive approach, less unstrained assets, has made fewer supplies and is ruled by an executive whose resources were formerly traded in the secondaries marketplace.

Private equity deposits’ liquidity recovers if more non-customary purchasers, as in opposition to the steadfast secondary assets, offer tenders, and the inclusive marketplace environment is positive (Franzoni, Nowak & Phalippou 2012). In conclusion, the liquidity substitutions are meaningfully and certainly related to the ultimate tenders at which the private equity deposit interests are traded, compared to the typical marketplace offers. The most important private equity deposit features affect their marketability and that liquidity is estimated in the engaging secondaries private equity marketplace propositions (Franzoni, Nowak & Phalippou 2012).

In 2014, Harris, Jenkinson, and Kaplan analyzed the performance of almost 1500 United States takeover and undertaking investment funds using a novel fact sheet from Burgiss. They discovered an improved takeover deposit performance when compared to the formerly recognized performance that had constantly topped that of public marketplaces. Private equities managed to outperform the S&P 500 by 25% when considering a fund’s lifespan and more than 3% per annum (Harris, Jenkinson & Kaplan 2014).

Venture assets capital topped public equities at the end of the 20th century but lost its crown with the beginning of the 21st century. Harris, Jenkinson, and Kaplan’s suppositions are built on numerous aspects and risk assessments. Their research also showed that Venture Economics has the lowest signs of performance amid similar businesses. Performance in Burgiss and Preqin was specified to be on a relatively similar level (Harris, Jenkinson & Kaplan 2014). The major private equity businesses are on the point of continuing to nurture in dimensions and reputation.

One of the key motives for this is that autonomous capital reserves in Asia and the Middle East, which stereotypically capitalize in the best interests of a government, are paying attention to the trophy titles in private equity and are reluctant to have confidence in their cash with a minor, not as much of familiar organizations (Harris, Jenkinson & Kaplan 2014).

In their 2012 study, Higson and Stucke presented convincing indications on the effectiveness of private equity, utilizing a high-quality fact sheet of deposit cash incomes that covered approximately 88 percent of the overall assets ever upstretched by the United States takeover resources. For nearly the last four decades, takeover resources had suggestively outdone the S&P 500 (Higson & Stucke 2012). Liquidated capitals from the last two decades of the 20th century have distributed extra revenues of approximately 465 base points in a year.

Higson and Stucke considered accumulating the moderately liquidated reserves up to the middle of the 2000s; this resulted in the fact that the surplus revenues rose to over 800 base points. It was as well found that the cross-sectional discrepancy is substantial with slightly over 62% of all assets doing much better than the S&P. The surplus earnings were proven to be determined by monthly variations instead of trimestrial capital.

The researchers also documented an exciting periodicity in revenues with considerably higher numbers for capitals set up at the beginning of each of the previous three periods, and consistently lesser earnings on the way to the end of each period (Higson & Stucke 2012). Still, they found a noteworthy descending tendency in total revenues over all three decades from the 20th century.

Higson and Stucke’s results turned out to be robust to calculating superfluous revenues using money multiples as a replacement for the Internal Rate of Return and were fundamentally unaffected when pricing remaining values at the detected subordinate marketplace markdowns. Limited partners are making an effort to make these standings more beneficial in binary ways (Higson & Stucke 2012).

The primary is by co-participating. This depicts, for instance, that if a private equity business is forming a merger of a public corporation, the limited partners will contribute unswervingly to the deal as an extra stockholder but without their capitals being dependent on the standard private equity firm charges. They would, in force, produce any revenues from the deal without having to cut their share (Higson & Stucke 2012). After the time interval of strong development, the private equity trade has gone through a noticeable deterioration.

Currently, the future of the undertaking and acquisition businesses appears to be uncertain (Lerner 2010). There are four probable set-ups for the future of the PE commerce that were outlined by exploring the determining factors of PE stock and demand. Even though each of the set-ups is backed with the supporting evidence, coming up with an estimate for the future remains problematic (Lerner 2010). The convenience of the private equity marketplace is on the verge of being the topic of discussion for a long time.

Modern Portfolio Theory

The theory presents a notion that risk-averse investors can develop portfolios for maximizing their expected return. Constructing an efficient frontier of optimal portfolios can offer maximum potential expected returns to the investors for a given risk level. Moreover, by using this theory, the investors can decide whether private equity funds or S&P 500 would ensure better return with less risk in a particular period.

Since the stock markets are efficient, no investor, manager or analyst can use the information which may allow them to outperform the market of other investors over time. Elton, Gruber, and Goetzmann (2009) asserted that there is a common assumption that investors are rational in making investment decisions. Passive management is more efficient and could provide better returns.

For most depositors, the risk they take when they purchase an ordinary share is that the income will be lesser than projected. To put it differently, it is the deviation from the normal revenue. Each ordinary share is represented by its standard deviation from the mean, which modern portfolio theory calls a risk. The risk in a portfolio of miscellaneous separate stocks will be less than the risk integral for possessing any one of the discrete shares (on condition that the risks of the different stocks are not directly connected).

In the case, if there are two risky stocks in the portfolio – one that repays when the situation in the market is stable and another that reimburses when it is not – the portfolio that holds both assets will continuously payback, irrespective of whether the situation is good or bad. Joining one risky benefit with another can decrease the global risk of a portfolio that covers all the possible circumstances. It has been proved that venture is not simply about selecting shares, but about picking the correct amalgamation of stocks among which to allocate one’s reserve.

Research Methodology

This section provides details of the techniques to be used in collecting and analyzing the necessary information for the study.

Research Philosophy

A research philosophy can be positivism, realism, interpretivism or pragmatism.

In this study, the positivist philosophy will be used to determine the link between the private equity funds and the S&P 500 and to know which fund can be most effective for the investors to generate better returns. As a philosophy, positivism follows the opinion that only accurate data attained via observation, together with measurement, is truthful. In this positivism research, the role of the investigator is limited to data gathering and clarification using unbiased methods and the research discoveries will be apparent and measurable.

Concerning the comparison of private equity and S&P 500 indexes, the positivism relies on measurable observations that guide themselves to numerical examination. It should be distinguished that as a viewpoint, positivism is consistent with the pragmatist opinion that knowledge is essentially based on the human experience. It features an ontological interpretation of the subject as embracing distinct, apparent elements and events that intermingle in an obvious, resolute, and consistent manner.

Furthermore, in this particular positivism study, the investigator is not dependent on the study and there are no requirements for human interests within research. Moreover, this positivist study will implement the deductive approach. There is also an inductive research approach that is typically connected to phenomenology. Besides, positivism is mostly associated with the viewpoint that the investigator will need to focus on the facts, not on the connotations.

The author of this dissertation is not reliant on their research, and their research can be chastely impartial. “Not reliant” denotes that they sustain minimal contact with their research partakers when executing their research. To put it differently, this particular study (based on the positivist model) is founded purely on the evidence and expects the world to be unprejudiced. The five main principles of positivism philosophy in this study are the following:

  1. There are no alterations in the reason of investigation across disciplines.
  2. The research should focus on elucidating and forecasting.
  3. Research should be empirically apparent using human intelligence. Inductive perception should be utilized to develop reports (theories) to be confirmed during the investigation course.
  4. Knowledge is not equivalent to good judgment. The practicality should not be permitted to bias the study results.
  5. Science must not be valued, and it should be mediated only by logic.

Research Approach

A study can use deductive, inductive or abduction approach in collecting the required information from various sources or even developing new concepts (Bergh & Ketchen 2006). The study will use the deductive approach to developing hypotheses based on existing literature on the study phenomenon.

The deductive approach is a top-down tactic that elucidates from the general to the detailed. In a pragmatic study, that defines that a market investigator initiates a study by bearing in mind the theories that have been elaborated in combination with an area of concentration (Private Equity and S&P 500 indexes). This approach permitted the author of the dissertation review the extensive research that has previously been conducted and establish an idea about outspreading or adding to that hypothetical basis. From the current point of view, the researcher works to establish whether private equity stocks are more profitable than the S&P 500 indexes.

This new supposition has been verified by the author in the course of directing a novel study. The explicit facts that have been gathered and investigated will arrange the foundation of the assessment of the proposition. It is substantial to signify that the hypothesis that has not been confirmed is not proven incorrect either.


The validity of collected information depends on the research strategies adopted (Kumar 2014). In this study, an archival research strategy would be used to get the opinion of the investors and fund managers and what risks they face when operating investments either through private equity funds or index funds. This strategy is suitable for acquiring valid data for any study.

Primary, private equity is an impartial venture into non-quoted businesses. As the businesses are not operated on a subordinate marketplace like the stocks of openly registered businesses, there is no marketplace price presented on a systematic basis. On condition that the business is traded to another stockholder can factual market values be detected, but this archetypally only occurs after numerous years. Because of the deficiency of systematic marketplace prices, the distinctive and renowned risk trials of public marketplaces, such as instability or underperformance, cannot be utilized in private equity.

On account of this lack of obtainability of market values, deposit managers originate a value for each business using one of the trade’s typical assessment procedures (for instance, marketplace comparables or cut-rate methods). These are not marketplace values and are termed net asset values. Additionally, they are similar to accounting prices and are testified to depositors four times a year to offer them a suggestive price for their venture founded on estimates of the unrealized funds held.

Even if these net asset values are occasionally utilized to estimate a risk degree, it is central to understand that they are not founded on genuine marketplace transactions. Therefore, they can vary from impartial market prices. This will be examined in depth in further sections of the dissertation, but it is imperative to mention from the beginning that this distinguishing trait of private equity makes it problematic to measure marketplace risk for the benefit type effectively. Second, a distinctive retirement fund, insurance corporation, or any other place of work does not capitalize straight into a business.

Predominantly, a deposit is utilized as the venture mechanism for the reason that the expert fund supervisor has both the skill and knowledge to find and pick the funds, manage them enthusiastically, regulate the policy of the corporation to create more profit, supervise the business, and trade it after a normal holding interval of five years.

The usual venture is done via a limited partnership assembly. At this point, depositors are the limited partners (LP) who pledge an expanse of assets at the beginning of the lifecycle of the enterprise with the lawful responsibility to recompense this investment into the deposit on every occasion the fund supervisor (General Partner) demands it. When the deposit manager has recognized an attractive venture prospect in a corporation, they will get the assets from the stockholder.

Usually, this will be performed throughout a 5-year outlay period. Subsequently, the venture will be held and withdrawn. Altogether, limited partners’ assemblies have a tendency to be arranged for a long-standing prospect of at least a decade with no recovery rights for depositors. They can only attempt to discharge their stake at the inferior marketplace for – contingent on the market state of affairs and peripheral aspects – a hypothetically big concession, owing to the illiquidity and disorganization of this marketplace.

Moreover, sales consultations can naturally take more than a few weeks before the parties agree. Intrinsically, a stockholder in private equity can track the dangers of liquidity. Last, of all, a depositor does not put in all of their assets on the opening date; instead, the cash is taken from the deposit over time. This embodies a definite risk for depositors, which is a consequence of the archetypal fund design. If the stockholder is not capable of paying the investment call consistent with the standings of the partnership arrangement, they default on their reimbursement.

In this situation, the stockholder might miss the whole venture and all the money which they already invested into the deposit. Numerous fund managers have severe guidelines in their Limited Partnership Arrangements on the occasion of a defaulting depositor. Archetypally, the depositor will lose their whole venture. In some cases, they still embrace the legal responsibilities. This firm apparatus is central for the fund manager as they are required to have the maximum imaginable security to fund the reserves they would not mind to attain.

On top of the risk of not being capable of gratifying their undrawn obligation, each stockholder can be unfavorably obstructed as an outcome of other depositors’ defaulting. This is why liquidity and capital risks ascending through unfunded pledges are an imperative component and have to be replicated in complex risk managing structures.

Numerous stockholders incline to make the S&P 500 Index the mainstay of their outlay portfolio. Others utilize the S&P 500 as a standard to evaluate the wellbeing of the marketplace or their outlay selection. This is a very dangerous approach that significantly upsurges the danger of failing to reach the economic objectives. Reviewing the S&P 500 is important before capitalizing on the withdrawal in a joint fund founded on the S&P 500. The experts do not advise the clients using index funds founded on the S&P 500 as the pillars of their portfolios for the reason that it is too perilous.

Those who have carefully chosen such a deposit as the main share of their IRA have to comprehend the venture strategy they have approved. S&P 500 assets capitalize most of their resources in a handful of businesses. Many individuals are certain of the fact that when they purchase $1,000 of the S&P 500 they are obtaining $2 of each of 500 businesses.

This is not correct as the S&P 500 is a capitalization-biased index that is not financed consistently. First, the S&P 500 index is only profitable when major corporations are prosperous. Additionally, the index embodies momentum financing. As a stock upsurges in value, it is more seriously weighted and therefore characterizes more of the individual’s venture. Third, as one certain business does fine, the revenues of the index tend to be more meticulously tied to how that business performs at some point.

And lastly, the index characterizes development capitalizing because it surpasses stocks founded on their value, not founded on their incomes. It capitalizes more on stocks that are more expensive but see more profit than the cheaper ones. The S&P 500 recompenses for previous growth and existing assessment, not the upcoming development – the intelligent objective of the stockholder.

This proves to be much more important than the high-priced shares in the S&P 500. These features are an inevitable module of the way the S&P 500 is established. According to one of the experts, if the S&P were a fiscal consultant it would recommend buying typically big cap growth shares in the business that performed nicely last year with a high price per income proportion. This information ends up in a very belligerent and very unstable portfolio that does better towards the end than the launch.

Data Collection

A mixed-methods design will be used in this study to ensure the collection of both quantitative and qualitative data. Various past studies will be reviewed to obtain the necessary data on the two classes of assets. Thus, credible secondary sources of data such as journals will be used for this study. This will be done through examining trends in the use of private equity funds or index funds to ascertain which investment management fund has shown growth and has been accepted by the investors.

The results are going to be upsetting at protecting the assets all through a tolerant market – exactly what occurred during the last five years. In 1999 the S&P 500 grew 22%, but the majority of the shares in the catalog decreased. After realizing the technology shares advances, the S&P 500 grew slightly less than 7%. By early 2000 technology shares signified more than 30% of the backing of the S&P 500. These values were the best on the market, and no other business got on the level of technology shares. In 2000 when high cap progress shares dropped 35%, small-cap progress increased 19%, and in 2001 while high cap progress fell an extra of 19%, small-cap profit was still getting higher and grew another 18% (See Figure 3 for more info).

S&P 500 Annual Total Return Historical Data.
Figure 3. S&P 500 Annual Total Return Historical Data.

The shares market tendency was a high cap progress and consequently also an S&P 500 tendency. The NASDAQ catalog is even more unstable and experienced an even larger improvement. Those depositors, prudent enough to evade using the S&P 500 as their economic counselor, circumvented these great losses and well-maintained their beliefs. The up-to-date unfairness of the S&P 500 is the economic situation. The banks, loaning businesses, indemnification, and so on) currently signifies the major subdivision at 22% and nowadays denote more than 50% of the S&P 500’s incomes (more information on the performance of private equity compared to S&P 500 can be seen in Figure 4).

The performance of Private Equity funds.
Figure 4. The performance of Private Equity funds.

Financials have had a fine gratefulness during the interval of dropping interest rates. But past profits are no promise of the upcoming performance. The companies have been taking those incomes and reducing on their venture in the economic segment at the particular interval when the S&P 500 has been growing theirs.

Whether or not growing interest extents will reduce, the imminent incomes of the economic division remain to be seen, but this signifies an amplified contact that S&P 500 stockholders haven’t measured. Energy shares, which denote about 20% of the incomes in the S&P 500, only contain 7% of the venture. This type of capitalizing underestimates the energy segment at a time when solid asset shares (oil, wood, precious metals) are on the rise.

To conclude, S&P 500 capitalizing fails to take into consideration the money and liability of a business even though these aspects are critical to calculating a corporation’s genuine value. If a business’s marketplace cap is $1 billion, but it has $500 million in currency and no liability, they are effectually disbursing only $500 million for the corporation for the reason that they are acquiring the company’s cash funds. These cost contemplations are gone in S&P 500 capitalizing (see Figure 5 for the detailed comparison between PE and S&P 500).

The performance of Private Equity funds against the S&P 500.
Figure 5. The performance of Private Equity funds against the S&P 500.

Trivial cap shares and value shares repeatedly do great throughout the opening of a market in increasing awareness rates. These are the factors that the majority of the companies are presently going through. It has frequently been mentioned that the typical profit of the S&P 500 has been flanked by 10% and 12% per annum. This has not changed for the last 65 years.

Nonetheless, it has only happened three times that the S&P 500 had an authentic income between 10% and 12%. Evaluated the opposing way, in 62 of the overall 65 cases, the incomes of the S&P 500 have been less than 10% or more than 12%. Factually, many individuals who have experienced a serious loss in their S&P 500 selection did not have the time to wait for a decade for their losses to recuperate. The training had to be rewarded, and withdrawal pronouncements had to be made.

The overall findings of this study show the evidence of the fact that companies should not count on the S&P 500 to be their fiscal counselor. The point is that the accurately differentiated portfolios that are prudently financed and skillfully managed have a better chance of accomplishing the company’s economic objectives and guaranteeing a reliably stable profit.

Ethical Consideration

Throughout the study, ethical code of conduct would be maintained. The participants would be completely informed about the purpose and nature of the study. Also, the voluntary participation would be sought. No individual would be pressurized to give their opinion. Additionally, the research would be carried out only for academic purposes and as an original piece of work.

During this research, participants were not exposed to damage of any kind. The author of this study made reverence for the dignity of research partakers their main priority. All participants of the research intricately realized what they had been explicated to. They got a chance to ask questions for the explanation, and the responses were provided by the researcher. All of the printed documents were read and comprehended by the contributors and, consequently, did not comprise any technical terminology unfamiliar to the partaker.

Full agreement has been obtained from the contributors before the investigation. One of the main points was the fact that the researcher ensured the protection of the privacy of research participants. The author of the study provided voluntary involvement of partakers in the research. Therefore, an acceptable level of privacy of the research data has also been guaranteed. The author of the study has also guaranteed the confidentiality of the organizations that contributed to the current research. Any dishonesty or overstatement about the goals and objectives of the study were evaded.

Connections of any kind, sources of subsidy, in addition to any probable conflicts of interests were acknowledged. All the communication regarding the research has been done with uprightness and impartiality. The author of this study managed to avoid all of the types of deceptive information, as well as the depiction of primary data discoveries in a prejudiced way. One of the most significant ethical considerations in this research was autonomy. Taking part in research was voluntary.

There were no embellished promises to entice a partaker or any form of pressure. The participants were permitted to converse whether they should go in for the role or not with their family or a person they trust before taking the role. The research was conducted professionally, consistent with the objectives and ethical contemplations that were set before the investigation. This conventionality guarantees the transparency and impartiality of the obtained results and verdicts that are to be reached.

The author of this research states that they were not part of anyway when conducting their study. Self-trickery was avoided in all conditions. Individual aspects that might have affected the research one way or another were also divulged. Every step of the research was taken accurately and thoughtfully. Errors ascending as a result of inattention or negligence did not occur. The author of the dissertation had critically reviewed the work they have done. Research events like communication, research strategy, and data gathering were well logged, described, and analyzed.

Time Horizons

Table 1: Gantt chart

Activity Week 1-2 Week 3-4 Week 4-5 Week 5-6 Week 7-8 Week 8-9 Week 9-10
Selecting topic
Identifying research area
Preparing research proposal
Literature Review
Collecting secondary data
Analyzing secondary data
Evaluating the survey’s responses
Analyzing and comparing the results of the primary and secondary research
Final report


The table below highlights the budget for this study.

Resources Cost
Indirect costs (databases, journals and books) $ 20
Travel $20
Stationery $10
Total $50


This study might be advantageous for GII in terms of thorough insights into the stock market. The research is backed with both primary and secondary data and reflects only unbiased, objective data that is further interpreted by the author of the dissertation. These insights as well represent a benefit for the company regarding the investments made by the management. The paper must explain the differences between private equity and the S&P 500 index and follows the trends of both these notions.

The key factor in this situation is the relatively identical situation for PE and S&P 500 in the present market. Selecting where to invest the funds can be a tough question if there is no prior research on this subject. This is the supportive side of this dissertation as it helps understand the market and provides the readers with the authoritative opinion of the experts in the investment field.

The study also reflects on the detailed statistics of both private equity and S&P 500 and their performance over the last 25 years. This analysis provides GII with the current data that is relevant and useful. The experts provided information on the types of risks that might be encountered when investing the funds in PE and S&P 500 and dwelled on the complications that may arise during the stock funding. This dissertation is designed to help in deciding on the selection of the fund investing area and should be of great assistance to the GII company.


Private equity efficacy has been misinterpreted in some indispensable ways. It now looks as if the private equity business definitively outperforms the S&P 500 about risk-attuned revenues, which may motivate the organizational stockholders to distribute even more assets to this certain asset class. But this factual data comes with a remark. The topmost private equity companies now appear less up to generate reliably effective funds. That is partly for the reason that the accomplishment has become more autonomous as the overall level of capitalizing expertise has amplified.

The new significance of achievements is distinguished competences. Limited partners think assets that utilize a general partner’s characteristic strong points will excel, while more generalist tactics may be deteriorating from an errand. Organizational stockholders will have to bounce back at classifying and evaluating these skills, and private equity companies will want to look at the market to better comprehend and take advantage of the features that actually determine their performance.

Private equity has increased from the correspondent of 1,5% of the worldwide ordinary share marketplace capitalization in 2000 to approximately 4% in 2012. Since it has first appeared it resounded and smashed in conjunction with public markets, while inevitably captivating supplementary share. Simultaneously, it may be detected that private equity—though supposedly an alternate benefit class—has in two routes floated in the direction of the mainstream. Within the framework of this dissertation, it may be determined that approximately a decade ago private equity could not overcome the S&P 500 on a risk-attuned foundation as only a small number of businesses steadily beat the index.

It has also been found that private equity revenues have become extremely interrelated with public marketplaces. As the discernment of private equity’s distinction has diminished, the dues that the business charges stockholders, already stressed, have come to appear specifically excessive. And as businesses have come besieged for several of their practices, they have not always been successful in explaining their part to the community. These are grave trials but, if revenues are only typical, all of the above is not that important.

Private equity revenues are, nevertheless, especially problematic to estimate. As a rule, the business does not put out its outcomes. The data that are presented can be unreliable and hard to understand, as both PE businesses and their LPs exploit various methods for their estimations. What is even worse, the database on which academics have counted on turns out to have had thoughtful organizational problems. Reassuringly, this particular research founded on more topical and more constant statistics proposes that private equity revenues have been much better than formerly assumed, however, top firms’ efficacy is nowadays less reliable to a certain degree.

The conformist understanding of earnings comes from the examinations of assets raised in 1998 and before that date. It was found that resources formed since 1998 seem to have evocatively outclassed the S&P 500 index, even on a control-attuned basis. Over the long term, private equity revenues have outdone the S&P 500 index by no less than 290 basis points.


Augustine, B 2014, ‘UAE’s Real Estate Recovery is Supported by Solid Fundamentals: S&P’. [Online]

Bergh, D & Ketchen, D 2006, Research Methodology in Strategy and Management, UK: JAI Press.

Dunn, J 2011, Share Investing, China: Wiley.

Elton, E, Gruber, M & Goetzmann, W 2009, Modern Portfolio Theory and Investment Analysis, Delhi: Wiley.

Fevurly, K 2013, Private Equity Funds, The Handbook of Professionally Managed Assets, pp. 209-228.

Franzoni, F, Nowak, E & Phalippou, L 2012, ‘Private Equity Performance and Liquidity Risk’, SSRN Electronic Journal, vol. 67, no. 6, pp. 2341-2373.

GII TECH, 2016, Press Release: Valencell Secures $11 Million in Series D Funding, Abu Dhabi: GII.

GII, 2015, ‘Gulf Islamic Investments Concludes the Acquisition of More Café and expands its focus into the UK Real Estate’, Abu Dhabi: GII Media.

GII, 2015, ‘Press Release: May, 2015’, Abu Dhabi: GII.

GII, 2016, Home Page. [Online]

Green, T & Jame, R 2011 ‘Strategic Trading by Index Funds and Liquidity Provision Around S&P 500 Index Additions’, SSRN Electronic Journal, vol. 14, no. 4, pp. 605-624.

Harris, R, Jenkinson, T & Kaplan, S 2014, ‘Private Equity Performance: What Do We Know?’, The Journal of Finance, vol. 69, no. 5, pp. 1851-1882.

Hebner, M 2006, Index Funds, China: IFA Publishing.

Higson, C & Stucke, R 2012, ‘The Performance of Private Equity’, SSRN Electronic Journal, pp. 1-48.

Jenkinson, T, Sousa, M & Stucke, R 2013 ‘How Fair are the Valuations of Private Equity Funds?’, SSRN Electronic Journal, pp. 1-27.

Jones, C 2009, Investments: Analysis and Management, USA: John Wiley & Sons.

Kabel, J 2014, Sukuk Pipelin for This Year Looks Promising. [Online]

Kumar, R 2014, Research Methodology: A Step-by-Step Guide for Beginners, India: Wiley.

Lerner, J 2010, ‘The Future of Private Equity. European Financial Management, vol. 17, no. 3, pp. 423-435.

Redhead, K 2008, Personal Finance and Investments: A Behavioural Finance Perspective, London: Routledge.

Roth, J 2010, Your Money: The Missing Manual, USA: O’Reilly.

Shankar, S 2007, ‘Active versus passive index management: A performance comparison of the S&P and the Russell Indexes’, Journal of Investing, vol. 16, no. 2, pp. 85-95.

Swensen, D 2009, Pioneering Portfolio Management, New York: Free Press.

This dissertation on Returns of Private Equity Funds vs. S&P 500 was written and submitted by your fellow student. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly.
Removal Request
If you are the copyright owner of this paper and no longer wish to have your work published on IvyPanda.
Request the removal

Need a custom Dissertation sample written from scratch by
professional specifically for you?

Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar

301 certified writers online

Cite This paper

Select a referencing style:


IvyPanda. (2020, August 3). Returns of Private Equity Funds vs. S&P 500. Retrieved from https://ivypanda.com/essays/returns-of-private-equity-funds-vs-sp-500/

Work Cited

"Returns of Private Equity Funds vs. S&P 500." IvyPanda, 3 Aug. 2020, ivypanda.com/essays/returns-of-private-equity-funds-vs-sp-500/.

1. IvyPanda. "Returns of Private Equity Funds vs. S&P 500." August 3, 2020. https://ivypanda.com/essays/returns-of-private-equity-funds-vs-sp-500/.


IvyPanda. "Returns of Private Equity Funds vs. S&P 500." August 3, 2020. https://ivypanda.com/essays/returns-of-private-equity-funds-vs-sp-500/.


IvyPanda. 2020. "Returns of Private Equity Funds vs. S&P 500." August 3, 2020. https://ivypanda.com/essays/returns-of-private-equity-funds-vs-sp-500/.


IvyPanda. (2020) 'Returns of Private Equity Funds vs. S&P 500'. 3 August.

More related papers