Private Equity Still Losing Money, But Worst May Be Over - Data

Tom Burroughes Editor London 8 December 2009

Private Equity Still Losing Money, But Worst May Be Over - Data

Private equity investors are still losing money although the rate of loss is less severe than earlier in the year, according to data through to the end of June, the research firm Preqin has reported.

One-year returns are still negative, but over the medium to long term the asset class is still generating healthy returns and is outperforming public indices, it says.

Preqin’s performance data is based upon returns for 4,890 individual funds, representing 65 per cent of all funds ever raised in terms of value. This information is gathered from fund managers and investors.

As of June 30, 2009, one-year returns for private equity were -24.1 per cent. This compares with one year returns for the Standard & Poor’s 500, MSCI Europe and MSCI Emerging Markets which stood at -26.2 per cent, -34.1 per cent and -27.8 per cent respectively. However, internal rates of return are not strictly comparable with performance of listed equities, since the internal rate of return on a private equity fund must take account of the complex timings of buyout deals and other transactions.

Private equity one-year returns remained negative, but improved significantly from the previous quarter, moving from -30.0 per cent as of March 2009 to -24.1 per cent as of June 2009, the report said.

Medium to long-term returns show private equity to be outperforming the S&P 500 by 10.3 percentage points over the three-year period and by 21.2 percentage points over five-years.

One-year horizon returns by fund type show buyout to be the worst performer with an IRR of -28.0 per cent, followed by fund of funds with -19.4 per cent, venture capital at -16.0 per cent, mezzanine at -14.2 per cent and distressed private equity with -13.7 per cent.

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