Returns and Risk to Private Equity

We assess returns and risks to private equity investors from 35 European countries for the time interval of 1996-2008. We find that returns to private equity are significantly higher than returns to publicly traded equity. Using customary measures to adjust for risk, the spread between private and public equity returns is sufficiently high to justify the idiosyncratic risk borne by undiversified private equity investors. There appears not to be a private equity premium puzzle in Europe of the type documented by Moskowitz and Vissing-Jorgensen (2002) for the U.S.