Investors often weigh the benefits of traditional public equity exposure versus private equity strategies. This is how $100,000 grows over 20 years when invested in the S&P 500. The results are compared to a private equity roll-up strategy. This strategy includes no leverage and offers monthly liquidity at 90% NAV. It also accounts for fees included.
1. Assumptions for the Comparison
S&P 500
- Average annual return: 9%
- Fund fee: 0.10% (low-cost index fund)
- Net return assumption: 8.9% per year
Private Equity Roll-Up (No Leverage)
- Gross return: 20% per year (conservative average for roll-ups without leverage)
- Fees: 2% management + 20% performance fee
- Net return: Typically ~15% per year after fees
- Liquidity: Monthly redemptions are available at 90% NAV. An early exit implies a 10% haircut. However, long-term compounding remains intact if the investment is held.
2. Growth Over 20 Years
S&P 500
100,000×(1.089)20≈545,000100,000 \times (1.089)^{20} \approx 545,000
- Final Value: $545,000
- Multiple of invested capital: 5.45x
Private Equity Roll-Up (After Fees, No Leverage)
100,000×(1.15)20≈1,636,000100,000 \times (1.15)^{20} \approx 1,636,000
- Final Value: $1.64 million
- Multiple of invested capital: 16.4x
Even after fees and no leverage, private equity outperforms by 3x compared to the S&P 500.
3. Liquidity Consideration
The monthly liquidity at 90% NAV adds flexibility uncommon in traditional private equity. For instance:
- An investor redeeming early (say in Year 10) would take a 10% haircut on NAV.
- At Year 10, NAV ≈ $404,000. A redemption would yield $364,000.
- By contrast, the S&P 500 at Year 10 ≈ $236,000 (no haircut).
Even with a liquidity discount, the private equity investment remains ahead.
4. Comparative Wealth Creation
- S&P 500: $545,000
- Private Equity Roll-Up (Net, No Leverage): $1,636,000
- Difference: ~$1.1 million more wealth with private equity
5. Key Takeaways
- Private Equity Roll-Up: Outperforms significantly, even without leverage, despite higher fees and illiquidity. Liquidity at 90% NAV provides optionality rarely available in private equity structures.
- S&P 500: Safer, fully liquid, low-cost, but delivers less than one-third the wealth creation over 20 years.
- Conclusion: For investors with a long-term horizon, allocating to private equity roll-ups be beneficial. This is especially true for those offering improved liquidity structures. Such investments are a transformative wealth-building strategy.
