It is generally true that PE-returns based on non-arms length valuations would be less volatile than an comparable equity portfolio, due to the reason you point out valuation. While valuation dominates "residual value" in the IRR calculation earlier in the life cycle of a fund, it is also true that IRR is an average (even if geometric) and as such is smoothed by definition. If one takes the volatility of the moving average of S&P500 it will be less than the volatility of the S&P500 by the sheer math of taking an average (smoothing). Comparing averaged returns and un-averaged returns produces undefined results. The problem will be especially pronounced, due to the appraisal based residual value component variable impact, given the nature of a benchmark with a long history where there is a higher number of fully matured funds (higher bias due to averaging) than non-matured funds (less average due to averaging) .