For those of us who have been in this industry for 20+ years, we grew up hearing that the Private Equity industry offered the most efficient path to professional success. Why? There was a formula that almost guaranteed beating the traditional stock market returns, and it could be applied again and again and again. In the US, Western Europe, and Asia-Pacific, the S&P 500, MSCI Europe PME, and the MSCI Asia Pacific PME all had better returns than the PE if the time horizon was limited to one year. However, if the time horizon was adjusted to five, ten, or even twenty years, the LBO returns were higher in every region. To sweeten the deal, long-term capital gains – where the hold period is greater than one year – are taxed at a much lower rate than short-term capital gains (held for less than a year). So, in theory, simply rinse and repeat.

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