Geographic diversification in private equity buyout

The sections that follow examine each of these points in turn, with a focus on what the evidence implies for geographic diversification in private equity portfolio construction.

1. Comparable returns across geographies

A common objection to European private equity is that it underperforms its US counterpart. Across three decades and multiple currency perspectives, the evidence does not support that view. Across 5-year, 10-year, 20-year, and 30-year horizons ending 30 September 2025, US and European buyout delivered annualised returns broadly in the 13-15% range, whether measured in USD or EUR on an unhedged basis. That pattern has held across different interest-rate regimes, currency cycles and macroeconomic environments.

Rolling returns reduce the influence of arbitrary start and end dates. On that basis, the conclusion is similar: over the period from 30 September 1995 to 30 September 2025, the median of rolling 5-year annualised time-weighted returns was 15.2% for European buyout in EUR and 14.3% for US buyout in USD. The gap is narrow and reverses over other periods. The takeaway is not which geography provides the highest return, but that both markets have produced broadly similar long-run outcomes.

Relative to global public equity benchmarks, buyout returns exceeded those of the S&P Global 1200 by approximately 100 to 500 basis points per annum over the sample period, depending on the timeframe.² That premium has varied over time and has narrowed in more recent 5-year and 10-year windows, reflecting strong recent public-equity performance. Over longer horizons, the evidence remains supportive of a private-market premium over public markets, although capturing it consistently requires a programmatic deployment approach given the reinvestment risk inherent to the asset class.

The directional conclusions are also consistent across methodologies. Whether returns are measured using time-weighted returns, internal rates of return or public market equivalent benchmarks, the broad findings are consistent: US and European buyout have delivered comparable long-run performance³ and have overperformed public benchmarks over sufficiently long horizons. This alignment across methodologies reduces the risk that the findings are driven by any single measurement convention.

2. Geographic diversification as a portfolio construction feature

If the first section is about return comparability, this one is about what diversification brings to a portfolio. The answer is more nuanced than many investors expect and applies to both EUR-based and USD-based investors.

Crisis complementarity: alternating leadership during stress periods

One of the clearest expressions of the diversification benefit emerges during periods of market stress. Given that buyout funds take multiple years to deploy capital, the funds most exposed to a crisis are generally those raised in the years preceding it. The vintage cohorts in Figure 2 are selected on that basis. Across them, outcomes have historically diverged between the two geographies, with leadership alternating depending on the nature of the shock.

Funds raised in 1996-1998 were largely deployed at or near peak valuations before the dot-com correction unfolded, and European buyout significantly outperformed over that period, reflecting lower technology exposure and a more defensive sector composition. The Global Financial Crisis (GFC) vintage window covers 2005-2007 vintages, capturing funds that mainly deployed at pre-crisis valuations and absorbed the full impact of the global financial downturn. US vintages were the stronger performers in a period during which US monetary and fiscal responses were both earlier and larger in scale than those in Europe, and that pattern continued during the subsequent European sovereign debt crisis (2009-2011 vintages) as Europe faced concentrated sovereign stress and weaker economic performance. The COVID-19 shock produced broadly similar outcomes across the two regions, reflecting the synchronised nature of global policy responses.

Taken together, these episodes illustrate that geographic and sector diversification are closely linked. Holding exposure to both US and European buyout markets implies, by construction, a more balanced sector mix than either market provides on its own, and that balance has historically contributed to stabilising returns during periods of region-specific stress. These patterns should not be generalised from the limited number of crisis episodes considered. That said, they are consistent with the view that the two geographies are driven by different underlying exposures and market dynamics. The diversification benefit is most visible when shocks are geographically idiosyncratic. In the event of a fully synchronised global shock, where the same forces affect both markets at the same time, that complementarity effect would be expected to diminish.

For EUR-based investors, US buyout has historically enhanced portfolio resilience during European-specific dislocations. For USD-based investors, European buyout has historically helped stabilise portfolios during US-centric downturns. In that sense, the diversification benefit runs in both directions.

A fuller analysis of geographic diversification during stress would also examine distribution dynamics, exploring whether one capital market stays more open than the other when exit conditions deteriorate. This is an additional dimension that could further enrich the analysis.

Correlation to public markets: European buyout as a diversifier

From 30 September 1995 to 30 September 2025, measured against global public equities (S&P Global 1200), US buyout exhibited an average rolling 5-year correlation of 0.82, compared with 0.56 for European buyout. Both relationships are imperfect, which is the basis of diversification, but European buyout has historically provided lower correlation to public equities per unit of allocation, both in relation to a global benchmark and to a local equity index in local currency.

Against the S&P Europe 350 in EUR, European buyout’s average rolling 5-year correlation was 0.61. This suggests that the diversification advantage is not simply an artifact of currency translation or benchmark choice, but reflects deeper structural differences.

This correlation differential has persisted across multiple market cycles. For investors who hold large public equity allocations, European buyout has historically offered lower public market sensitivity than US buyout while delivering comparable long-run returns. The difference appears economically meaningful and is consistent with the composition gap between European public indices and the sectors more heavily represented in European private equity. European public indices remain tilted toward financials and mature sectors, whereas European private equity allocates more capital to technology and other parts of the economy that are less fully represented in public benchmarks.⁴

Resilience: mitigating downside without sacrificing upside

As an illustration, over the 30-year period examined, a 50/50 US/European buyout blend did not generate negative annualised returns over any 5-year rolling window in either USD or EUR terms.⁵

Figure 4 summarises the corresponding best- and worst-period outcomes.

This downside mitigation characteristic is consistent with imperfect correlations across the two regions, which have historically allowed periods of weakness in one market to be offset by relative strength in the other. In its worst 5-year period, the S&P Global 1200 returned approximately -5% in USD and -8% in EUR. By contrast, both single-geography buyout allocations in their respective local currencies, as well as the 50/50 blended sleeve in both EUR and USD, remained positive over their respective worst windows. That said, the comparison with public markets is not entirely like-for-like. Private equity managers have the operational flexibility to delay transactions until market conditions improve, and interim valuations often lag public market moves. Reported private equity returns during stress periods may therefore reflect some degree of valuation smoothing rather than fully realised outcomes. The downside numbers should be interpreted with that context in mind.

The improved downside profile did not appear to come at the expense of competitive upside outcomes over the sample period. The best rolling 5-year period for the blended allocation remained broadly comparable with those of single-geography exposures. In peak periods, currency also contributed meaningfully to returns. For European buyout measured in USD, the best 5-year window (31 March 2003 to 31 March 2008) was amplified by euro appreciation, which contributed approximately 10 percentage points of the 38% annualised return. A similar effect appeared in reverse for US buyout measured in EUR, where US dollar strength added a similar 10 percentage points to the 36% figure measured over the strongest historical 5-year window (30 September 1995 to 30 September 2000).

3. Distinct sector exposures and market drivers

The diversification benefits extend beyond correlation statistics. The two markets invest in structurally different businesses, for structurally different reasons, and each has distinct competitive advantages that the other lacks.

Sector allocation: differentiated exposures across markets

The sector composition of US and European buyout markets differs meaningfully. Over the past 10 years, US buyout deals have been more heavily weighted toward healthcare and IT/software (jointly making approximately 37% of the deal value compared to 28% in Europe). European buyout, meanwhile, has provided greater exposure to consumer and business-to-business products and services. Combined, the two geographies offer broader coverage of the economic landscape than either does on its own.

This matters from a portfolio-construction perspective. Combining the two markets reduces single-sector concentration and broadens exposure across a wider range of business models and macroeconomic sensitivities.

Structural drivers: different market foundations

It would be misleading to describe the US and European private equity markets as simply “similar but in different places”. Each operates on a distinct set of structural foundations, and those differences shape the risk/return dynamics and the implementation characteristics of the opportunity set.

The US market benefits from greater deal volume, deeper capital markets and a more unified legal and regulatory framework, all of which support a highly efficient private equity ecosystem. Competition is intense, but so too is the infrastructure for value creation and exit.

European private equity operates differently: competition per asset is often lower, the target landscape includes many subscale and often family-owned businesses with no dominant consolidator, and a structurally earlier stage of institutional development that still rewards first-mover positioning. These conditions can create opportunities (e.g. buy-and-build) that are less prevalent in the more consolidated US market.

Both regions offer investable advantages, but those advantages arise through different mechanisms.

One additional point specific to Europe: the regulatory and linguistic fragmentation across jurisdictions is not only an operating challenge, but it can also function as a barrier to entry that favours established local networks. GPs with deep country-specific relationships operate in environments where effective execution requires familiarity not only with language, but also with local legal, commercial, and cultural context. This feature should be viewed as a source of competitive strength, not a limitation.

What this means for investors

Two observations emerge from the analysis, forming a coherent case for diversification in private equity buyout:

• The evidence supports owning both geographies. Over long horizons, US and European buyout have delivered broadly comparable returns in both USD and EUR terms. A blended allocation has also exhibited more attractive diversification properties than either market alone, including lower public-equity sensitivity and more balanced outcomes during periods of region-specific stress. Taken together, the evidence supports a portfolio that includes both geographies rather than treating them as substitutes.
• European buyout should be treated as a core portfolio exposure rather than a peripheral one. Its lower public market correlation, differentiated sector composition, structural under-penetration relative to the US, and long-run returns that have broadly matched those of its American counterpart make it relevant not only from a return perspective, but also from a portfolio-construction standpoint. This applies to USD-based investors as much as to EUR-based ones.

One final implementation point is worth noting. The performance spread between top- and bottom-quartile buyout managers is approximately 19 percentage points in 10-year IRR in both geographies, indicating that neither market is inherently easier to navigate. By comparison, the equivalent spread in global equities is roughly 3 percentage points.⁶ Geographic diversification can improve portfolio construction and broaden the opportunity set, yet the benefits of diversification will depend materially on implementation quality and on the ability to identify and access top-performing managers across both regions.

Your private equity portfolio needs a passport. But passports, like strategies, only start your journey. What you do once you are there is what determines whether the trip was worth making.