and the long-run TVPI is 1.71. We also estimate the GPME, as proposed by Korteweg and Nagel (2016), which adjusts for the beta of the assets of the underlying portfolio. The GPME is scaled such that equivalent performance to the market equals zero instead of one and a GPME above zero indicates outperformance. (see the discussion in Jeffers et al. 2024).<sup>14</sup> The point estimates of the GPME are above 2 for all periods except investments post-2010; these point estimates suggest the portfolios perform well, but the p-values, reported below, indicate we cannot reject the hypothesis that the GPME=0 at standard levels of statistical singificance. The GPME, unlike the PME, relies on an estimate of a stochastic discount factor, and is is measured with statistical error (we use code from Korteweg and Nagel to estimate this). Korteweg and Nagel (2022) note that lower statistical precision is a drawback of the GPME measure.

**Recent investments.** Restricting the portfolio to only investments with vintage years including 2010 and after, the PME dipped below parity with all three public indices, although it still achieved returns comparable to MSCI EM with a PME = 0.98 relative to that index. Relative to the S&P 500, the most recent decade of investments delivered a PME = 0.70. Two factors other than the short holding period for recent investments could explain the decline in returns. First, the significant rally in U.S. equities since the global financial crisis could explain underperformance relative to the S&P 500. Second, the IFC scaled up investment in the recent decade primarily in more developed middle-income markets, as described by Kenny et al. (2018). Figure A1 shows that global FDI plateaued in this decade, while IFC investment expanded sharply, suggesting perhaps that fewer profitable investment opportunities were available at that time. Consistent with this view, emerging markets have underperformed advanced economies in the most recent decade in other portfolios as well, for instance, in the MSCI index (see `https://perma.cc/HW2D-3VYS` ) and the Cambridge Associates index (see `https://perma.cc/4QZ8-QN5E` ) of private equity and venture capital performance. Our results on financial openness and development, which has increased over time, provide further evidence on this hypothesis.

# **Portfolios of direct and fund investments and comparison to existing litera-**

**ture.** Table 2, Panel B reports returns to the IFC’s portfolio of direct investments, and, seperately, its portfolio of fund investments.

The literature on private equity returns has focused almost exclusively on the U.S. private equity industry, and specifically on the returns to limited partners (LPs) in private equity funds professionally managed by general partners (GPs). Kaplan and Sensoy’s (2015) comprehensive review of this literature reveals that, overall, leveraged buyout funds have outperformed the S&P 500, whereas the performance of venture capital funds, which employ less leverage and focus on

> 14Like Jeffers et al. (2022), we do not estimate beta directly given that the data include fair values of open investments at one point in time, nor do we observe changes in these values that could be correlated with the market return over time (see Gompers and Lerner 1997). Nonetheless, we investigate how risk varies across countries in Sections 4.2, 4.3, and 4.4 using quantile regressions that explore differences in the PME distribution.

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