E267: Why 95% of LPs Misread Private Market Returns

Dec 22, 2025

In this conversation, Dr. Gregory W. Brown, a finance professor and director of the Institute for Private Capital, dives into the complexities of measuring private market returns. He highlights the challenges of risk-adjusted evaluations and why alternative investments remain under-researched. Brown explains the Kaplan–Schoar PME method for better comparisons and reveals that buyouts often outperform public markets, while venture capital struggles with alpha. He also discusses the importance of fund size, geography, and individual partner skills in driving returns.

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INSIGHT

Why Measuring Private Returns Is Hard

Private assets lack observable market prices so NAV-based returns are smoothed and misleading.
The Kaplan–Schoar PME compares fund cash flows to a public benchmark to create apples-to-apples, market-adjusted returns.

INSIGHT

Buyouts Show Historical Alpha

Buyout funds historically show 2–5% alpha versus public markets after risk adjustment.
Empirical estimates put buyout beta roughly equal to the market, despite high leverage.

ADVICE

Design Portfolios Around Beta

Build portfolios around beta, not total volatility, because market risk is the undiversifiable factor that commands compensation.
Diversify to remove idiosyncratic risk and focus on assets' market exposure when pricing expected returns.

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Do private markets actually outperform public markets once you properly adjust for risk or is that belief built on flawed data? In this episode, I talk with Dr. Gregory W. Brown, one of the leading academic researchers in alternative investments, about what decades of data really say about private equity, venture capital, and risk-adjusted returns. We break down why private-market performance is so hard to measure, how tools like the Kaplan–Schoar PME changed institutional thinking, and what investors misunderstand about beta, volatility, and alpha. Greg also explains why buyouts and ventures behave very differently, how fund size and geography affect outcomes, and what this research implies for building diversified portfolios today.

Highlights:

Why alternatives are still under-researched compared to public markets
The core data problem in measuring private-market returns
How the Kaplan–Scholar PME creates apples-to-apples comparisons
Buyouts vs. venture: radically different risk profiles
Why buyout funds show positive alpha and venture largely does not
What beta actually measures (and why volatility is misunderstood)
The risk of ruin in high-beta, undiversified portfolios
Why small funds have higher upside but require real manager selection skill
Persistence of returns: partners matter more than firms
How public-market bubbles change private-market relative performance

Guest Bio:

Gregory W. Brown is a Distinguished Professor of Finance at UNC Kenan-Flagler Business School and one of the world’s leading experts on alternative investments, financial risk, and derivatives. He is the founder and research director of the Institute for Private Capital and has held leadership roles including Executive Director of the Kenan Institute of Private Enterprise. Greg’s research has been published in top academic and practitioner journals, and he serves on the board of the CAIA Association. His work bridges academia and practice, helping institutional investors better understand private markets through rigorous, data-driven analysis.

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Disclaimer:

This podcast is for informational purposes only and does not constitute investment, financial, legal, or tax advice. Nothing in this episode should be interpreted as an offer to buy or sell any securities or to participate in any investment strategy. All opinions expressed by the host and guests are their own and do not represent the views of Weisburd Capital. Participants may hold positions or have financial interests in the companies, funds, or investments discussed. Any references to specific investments are for illustrative purposes only. Investing involves risk, including the potential loss of capital. Past performance is not indicative of future results, and any forward-looking statements are subject to risks and uncertainties. Any third-party data or opinions have not been independently verified. Listeners should conduct their own research and consult their own advisors before making any investment decisions.

(0:00) Introduction (2:00) Explanation and Insights from the Kaplan Shore Index (7:04) Risk and Alpha: Buyouts vs. Venture Capital (10:39) Fund Size and Returns Dispersion in Buyouts (15:08) Persistence of Returns and Incentives in Public Pension Investments (19:44) Value Creation Skills and the Impact of the Mag Seven (22:00) Future Outlook and Historical Performance in Private Equity (23:27) Game Theory, Valuations, and Diversification Strategies (25:05) Closing remarks