How private equity performs in a (financial) crisis

February 19, 2013, 11:58 PM UTC

FORTUNE — Private equity gets a lot of grief for its so-called “Golden Age,” and not only because The Carlyle Group’s David Rubenstein had the chutzpah to actually use the phrase “Golden Age.” Too much money, too high prices, too few protections for lenders, etc.

A new study, however, suggests that private equity deals done between 2006 and 2008 actually outperformed public equity investments over the same time period. It was conducted by the HEC School of Management in Paris and German fund-of-funds manager Golding Capital Partners, and formally presented today in Frankfurt.

The researchers studied 303 transactions made during those years, and found that the absolute return on through the end of 2011 was 5.1%. Doesn’t sound too impressive, until you realize that the adjusted public equity market return was negative 15.4%. In other words, a private equity alpha of 20.5%.

They also examined a slightly larger set of private equity portfolio companies that were active at the time of Lehman Brothers’ collapse, and found a 5.1% alpha.

Compelling, but arguably premature.

To determine private equity performance, the researchers only examined portfolio companies that had been exited (via sale or public listing). That represents only around 80% to 85% of the entire universe, with the remainder still active portfolio companies through the end of 2011. The “remainder” percentage is fairly typical, according to HEC’s Oliver Gottschalg, but a case could be made that the hairiest deals are the toughest to exit.

For example, the study did not include Energy Future Holdings (f.k.a. TXU) — subject of the largest leveraged buyout in history, and one that is warning of possible bankruptcy. Also absent were Clear Channel and HD Supply.

Private equity firms technically have a decade or more to exit their investments, but they usually try to get out of the good ones within half that time. After all, those are the companies that other people want to own. What’s left behind is often less attractive.

The post-crisis public equity performance is now static, at least for the first four-plus years. Private equity performance, however, remains fluid and likely headed lower.

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