Private Equity Returns Fell Sharply In 12 Months To End Of March

Tom Burroughes Editor London 19 October 2009

Private Equity Returns Fell Sharply In 12 Months To End Of March

Private equity funds around the world suffered badly in the market downturn, as data from research firm Preqin shows returns slid by 30 per cent in the 12 months to 31 March this year.

The loss, while severe, was not as sharp as for listed equities, however; the MSCI World Index of developed countries’ stocks plunged by more than 40 per cent in 2008.

In the private equity sector, the standard measure of performance is internal rate of return, or IRR, which is designed to take account of the complex timings of these funds' investments and is not therefore strictly comparable with returns from listed securities such as stocks or bonds.

Preqin insisted that “over the medium to long term, the asset class [private equity] is still showing healthy returns and is clearly outperforming public indices”.

The survey was drawn from returns for 4,855 individual funds, representing 65 per cent of all funds ever raised in terms of value.

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.

Fund managers wrote down the value of their portfolios by 14.0 per cent in December 2008 compared with the previous quarter, and a further 4.0 per cent 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 per cent in Q4 2008.

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