Private equity returns are often assessed using IRR, valuation multiples and distributions, but these measures provide limited insight into the systematic risk required to generate those returns.
This paper examines the capital efficiency of Arvore Partners, an evergreen lower middle market private equity strategy. Using 47 quarters of net return data from 2014 to 2026, the analysis tests Arvore’s exposure to ten factors spanning Canadian equities, fixed income, credit, inflation, currency and the Fama-French style premia.
The findings indicate that Arvore generated an 8.56% net compound annual return with relatively low equity-market sensitivity. Its smoothing-adjusted equity beta was 0.487, while its implied asset beta was approximately 58% below the level derived from published deal-level estimates for conventional buyout funds.
Arvore also produced more excess return per unit of systematic risk than the buyout comparators examined, outperforming beta-matched liquid portfolios under both tested specifications. No statistically significant exposure was detected across the four Fama-French style factors, while returns demonstrated a positive relationship with inflation.
The research suggests that lower middle market private equity may serve as a complementary portfolio building block—providing a return stream with relatively low systematic risk and limited overlap with conventional public equity exposures.View Full Report