Performance data for the private equity industry as of 31st March 2009 is now in. The results are showing that although private equity valuations are still in decline, the rate of quarterly change has slowed considerably from 2008, suggesting that the market is bottoming out and that the fund valuations are set to stabilize. Over the medium to long term, the asset class is still showing healthy returns and is clearly outperforming public indices.
Preqin’s industry-leading performance data is based upon net to LP returns for 4,855 individual funds, representing 65% of all funds ever raised in terms of value. This information is gathered from multiple sources including directly from fund managers, and also from investors in funds.
Key findings of the research include:- As of March 31, 2009, the one-year returns for private equity were -30.0% - beating the one year returns for the Standard & Poor’s 500, MSCI Europe and MSCI Emerging Markets which stood at -38.1% , -49.9% and -47.1% respectively.
- Medium to long-term returns show private equity is outperforming the S&P by 8.1 percentage points over a one-year period, 19.1 percentage points over a three-year period and 25.4 percentage points over a five-year period.
- One-year horizon returns by fund type show private equity real estate is the worst performer with an IRR of -40.5%, followed by buyout with an IRR of -33.8%, fund of funds with -20%, venture capital at -17.1%, and mezzanine with -2.0%.
- Fund managers wrote down the value of their portfolios by 14.0% in December 2008 compared with the previous quarter, and a further 4.0% in March 2009 in comparison with the previous quarter.
- For buyout funds, the biggest losses were seen at the top end of the market. Mega buyout funds declined in value by 21.9% in Q4 2008 (compared with the previous quarter) and again by 6.6% in the first quarter of 2009, whereas small buyout funds reported smaller losses of 4.9% in Q4 2008 and 3.7% in Q1 2009.
Comment:
Private Equity performance as of 31st March 2009 is still poor for most fund types, with portfolio valuations continuing to drop as fund managers remain unable to exit any of their previous investments. Although data for Q2 2009 is currently too limited to create meaningful benchmarks, it does appear that the recovery in the public markets is also being seen in private equity. Returns are stabilizing, and it is likely that future quarters will show a modest increase in net asset value after a sustained period of decline. The private equity industry is still beating all the main public indices, proving to be a valuable asset class for institutional investors.”
Etienne Paresys, Head of Research, Preqin
Click here to download the Preqin private equity performance update report.