Private equity’s edge depends on who runs the fund, not just the asset class
Private equity can continue to deliver returns above public markets, but the decisive variable is the choice of manager, according to Alisa Amarosa Wood, a partner at KKR. Her analysis underscores that while the asset class has outperformed over the long run, the gap between the best and worst managers has widened sharply — a development that has direct implications for South African institutional investors and savers who allocate to private funds.
KKR’s summary of historical performance shows private equity has generated about 400 to 500 basis points in annualised excess net returns over public equities across the past 25 years. That is meaningful: sustained outperformance at that level compounds considerably, improving the ability of pension funds and long-term investors to meet liabilities and support retirement incomes.
"The lesson is simple. In private equity, the who matters more than the what."
But the headline outperformance masks a far bigger story: dispersion. KKR highlights that the performance gap between top and bottom quartile private equity managers exceeds 1,400 basis points, compared with only 300 basis points among public equity managers. In plain terms, picking the right manager can make or break the return an investor ultimately receives.
Why manager selection now matters more
KKR argues that private equity returns are driven less by short-term market sentiment and more by the active work managers perform inside companies over time. That value creation can include:
- repositioning businesses and sharpening strategy
- growing earnings and improving operational margins
- strengthening leadership and talent
- expanding growth vectors and pursuing disciplined exits
These are resource-intensive tasks. The effectiveness of a manager’s sourcing capability, operational toolkit and support resources typically determines how successfully those levers are pulled. Where managers have deep playbooks and execution capability, they can transform portfolio companies even when overall market conditions are challenging.
Evidence from a prior KKR deal
KKR points to its 2013 acquisition of flow control technology provider Gardner Denver as an illustration of how deliberate value creation can work. According to the account, KKR helped the company improve product efficiency, executed a transformational merger with Ingersoll Rand and implemented an employee ownership element — measures that collectively reshaped the business and increased value at exit.
That example is offered not as a guarantee but as a practical demonstration of the mechanisms through which active ownership can produce superior outcomes. The broader implication is that when markets are more complex, valuations stretched and geopolitical and technological uncertainties — including over artificial intelligence — persist, investors should pay heightened attention to manager skillsets rather than relying on broad asset-class allocations alone.
What this means for South African investors
For trustees of pension funds, sovereign-wealth-style mandates or private investors in South Africa, KKR’s framing has three immediate lessons:
- Due diligence must go beyond headline returns: assess sourcing, value-creation playbooks and exit discipline.
- Fee structures should be evaluated in the context of dispersion — overpaying a poor manager can erase any asset-class premium.
- Diversification across managers and strategies remains important, but quality concentration with proven operators can be justified.
| Metric | KKR summary |
|---|---|
| Historical excess net returns (annualised) | 400–500 basis points |
| Dispersion: top vs bottom quartile (PE) | 1,400+ basis points |
| Dispersion: top vs bottom quartile (public equity) | 300 basis points |
None of this is investment advice. But for fiduciaries weighing allocations to private equity, the KKR analysis serves as a practical reminder: the asset class’s historical premium exists, yet it is realised only through competent, active management. In an era of tighter deal sourcing and more selective exits, placing bets on the right managers is arguably the most material decision an investor can make.
