Style Analysis of Private Equity Funds

How has private equity investing changed over time?

September 2025. Reading Time: 10 Minutes. Author: Nicolas Rabener.

SUMMARY

  • Private equity investing has been compared to small-cap value investing
  • One dataset validates this, another one challenges it
  • Given $6 trillion of AUM, a consistent investing style has become unlikely

INTRODUCTION

When Henry Kravis, George Roberts, and Jerome Kohlberg founded KKR in 1976, private equity as we know it today barely existed. Their strategy was straightforward: acquire businesses that could be improved through professionalized management, stronger incentives, or carve-outs from sprawling conglomerates. Firms trading at lower valuations often offered more scope for improvement. With limited capital of their own, KKR relied heavily on leverage to amplify returns. In factor terms, early private equity resembled investing in cheap small-cap stocks with steady cash flows.

By 1988, however, KKR was bidding $25 billion for RJR Nabisco – a giant conglomerate selling cigarettes and snacks. While its cash flows were robust, RJR Nabisco was neither small nor cheap; it was a blue-chip company, far removed from the archetype of early private equity targets.

Fast forward to today, the private equity industry manages more than $6 trillion across a wide spectrum of strategies and fund types. This research article explores how the style and focus of private equity investing have evolved over time.

FACTOR EXPOSURE ANALYSIS USING FAMA-FRENCH FACTORS

For private equity funds, we rely on the Finominal Private Equity Index, which tracks listed private equity funds traded on the European stock exchanges. This index offers daily return data, a valuable feature given that private equity funds traditionally report performance only on a quarterly basis. The universe includes established names such as HgCapital, ICG, and Apax (read Private Equity Without the Lag).

For factor analysis, we employ the Fama–French five-factor model augmented with the momentum factor. Using quarterly returns over rolling five-year windows, we estimate factor exposures through regression. The results show a stable positive beta to the U.S. stock market of approximately 0.8 from 1988 to 2025,