> only managed to beat an S&P 500 index fund by 1-2% after fees
From the article: "Over the 25 years ended in March, PE funds returned more than 13% annualized, compared with about 9% for an equivalent investment in the S&P 500"
When you are dealing with exponents small differences become enormous over time. Remember: y = y0*e^kt where y is money later, y0 is money now, e is 2.71, k is the interest rate, and t is time. So assuming 9% annualized return in the SP500, after 10 years, your million dollar PE investment will yield 2.5 million in the stock market, but 3.7 million in PE or a 1.2 million dollar difference. In addition, they maximize y0 by leveraging.
Ignoring the terrible social costs (e.g., Shopko from the article) and the fact that their accounting and tax practices are suspect, I'll take the PE any day.
From the article: "Over the 25 years ended in March, PE funds returned more than 13% annualized, compared with about 9% for an equivalent investment in the S&P 500"
When you are dealing with exponents small differences become enormous over time. Remember: y = y0*e^kt where y is money later, y0 is money now, e is 2.71, k is the interest rate, and t is time. So assuming 9% annualized return in the SP500, after 10 years, your million dollar PE investment will yield 2.5 million in the stock market, but 3.7 million in PE or a 1.2 million dollar difference. In addition, they maximize y0 by leveraging.
Ignoring the terrible social costs (e.g., Shopko from the article) and the fact that their accounting and tax practices are suspect, I'll take the PE any day.