According to Fabien Chen, head of benchmarks at Preqin, North American buyouts have outperformed European buyouts since June 2009. Based on Preqin’s buyout index, North American PE has delivered 806% returns net of fees, while European PE has returned 697%.

Given Europeans’ reputation for strict labor laws and love of vacation time, alongside their abundance of red tape, it’s tempting to blame operational frictions as the cause of this underperformance. However, according to Chen’s colleague Victoria Chernykh, an assistant vice president of research insights at Preqin, the blame is more due to the structural differences in North American and European PE markets.

“North America is a much more homogenous market. It's the largest market as well. You get deals of all sizes [that are] larger in aggregate. That will potentially give you differentiation in performance — if there are more deals within small and mid [market], they will outperform the mega deals,” she explained.

Indeed, mid-market and lower mid-market PE strategies have performed much better than large-cap strategies, as we explored in a recent article, “Why Do Smaller Buyouts Outperform Large Caps? Operations.” Over the past ten years, the average returns in terms of quarterly NAVs and distributions were 387% for small- and mid-cap strategies and 286% for large-cap strategies.

Europe, by contrast, is a more fragmented market, according to Chernykh. This geographic focus also has a negative impact on performance. The same can be said for sector fragmentation – which Western Europe experiences a lot of, as we explored in our Q3 2023 analysis. 

“You get different splits in sectors and sector returns [between geographies]. The European technology sector, for example, has had better returns because it's not that homogeneous. It's different companies and it's very entrepreneurial,” Chernykh explained.

Technology has far outperformed other sectors in PE globally, garnering an 848% return gross of fees over the past ten years, the second highest performing sector after raw materials and natural resources (852%). Telecoms and Media, by contrast, garnered just a 197% return gross of fees for the same period.

Chernykh added the caveat that since other sectors have different weights in the European market, there is overall underperformance. Preqin expects this trend to continue through 2029.

And finally, there are more opportunities for exits in the US market. 

“There are opportunities to exit mega deals in the American market; even the IPO market, the public market, is more active at the moment and more popular,” said Chernykh. “[American portcos] just have a bit of an advantage and freedom of movement to receive valuations that they want to receive when they exit and they do exit.”

In fact, Q2 2023 was the first time in recent history that Europe ever produced more PE exits than the US. Chernykh attributed this to a myriad of reasons, one of which being the stunted IPO market in the US, which has limited the avenues PE firms can take for larger exits. 

She expects that when the IPO market normalizes, large-cap exits for PE firms will, too – which will, again, favor US-focused strategies.