Macroeconomic Determinants and Shocks: Correlation and Causal Impacts on Private Equity Investments and Performance in the United States from 1983 - 2023

Abstract

This paper is structured in two distinct but complementary parts, with the first part employing a descriptive correlation regression model to examine the relationship between macroeconomic determinants and key private equity outcomes in the United states from 1983 to 2023. The second part controls for the macroeconomic indicators and employs an event-study regression model to isolate and estimate the impact of two macroeconomic shocks – the 2008 Financial Crisis and 2020 Covid Pandemic – on the same private equity outcomes. Main findings show that private equity deals and fund performance is largely procyclical, with growth-stage deals showing greater sensitivity to interest rate hikes and certain sectors like energy & real estate / infrastructure displaying counter-cyclical trends. Additionally, fund-level performance is amplified when periods of high unemployment coincides with subsequent GDP growth. Event-study regressions show that the 2008 Financial Crisis, due to delayed policy interventions, enabled private equity funds to capitalize on significant asset mispricings and discounted valuations, which counterintuitively boosted their returns. In contrast, the COVID-19 pandemic's robust policy response stabilized markets quickly but left little room for distressed investment opportunities for PE investors.