Contrary to what most people think, private equity does not outperform the S&P 500, net of management fees, or other public benchmarks by 4% to 6% annually, according to a recent Journal of Finance study.

Furthermore, private equity performance varies widely, although that performance tends to be consistent, i.e., successful private equity groups continue to be successful and vice versa.

However, with investment flows inclined to increase after periods with good performance and to decrease after periods with bad performance, those flows tend to skew subsequent performance returns negatively.

The study proves that when considering a fund, it is important to find funds with proven consistency, The Journal of Finance says.

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