In 2022 and 2023, following a long period of low interest rates, the U.S. Federal Reserve (Fed) fought the post-pandemic inflation shock with one of the most rapid rate-hiking cycles in history.

As that inflation normalizes and the Fed starts to cut rates, we explore, in two articles, the relationship between interest rates and private equity performance. Our second article will consider what has happened empirically, over the past 40 years, to private equity returns, distributions and manager performance dispersion as rates have fluctuated. In this first article we address the theory: How would we expect changes in interest rates to affect private equity?

We believe that, overall, private equity investments should be expected to perform better in a low-rate environment, but that, contrary to common assumptions, the valuations of lower-growth companies appear to be more sensitive to changes in rates than those of higher-growth companies.

You can now read the full whitepaper at the link below