Private equity investments held for the short term have seen returns improve slightly, according to preliminary data for 2009 as compiled by Thomson Reuters for the European Venture Capital Association. However, five-year term rates of return have slightly deteriorated, it said. In general, performance has been robust, figures showed.

The one-year horizon performance has improved marginally, at +3.5 per cent for buyouts funds; +3.1 per cent for private equity overall and a slight decrease of 1.3 per cent for venture capital. The five-year internal rates of return, meanwhile, fell from +8.5 per cent to +6.1 per cent in 2009. The decline is largely driven by buyouts, which dropped from +11.1 per cent as of 2008 to +7.9 per cent in 2009, while venture returns fell from +1.6 per cent to +0.7 per cent.

The long-term performance of the European private equity industry remains robust, with net internal rate of return since inception to December 2009 remaining strongly positive, at +8.8 per cent for all private equity, with buyout funds returning +11.8 per cent and venture funds returning +1.6 per cent.

Private equity long-term performance outstrips public market comparators, such as the HSBC Small Company index (+6.8 per cent) and Morgan Stanley Euro Equity index (+0.7 per cent). Comparisons between returns on listed securities and private equity can be problematic, however, since the internal rate of return measure that is employed with private equity is designed to take account of the often complex timings of transactions.

Top quarter performance remained very strong with a +21.4 per cent pooled average net IRR for all private equity funds, the report said.

Meanwhile, preliminary data showed that the €21 billion of new equity invested during 2009 represented just 29 per cent of the 2007 figure at the top of the boom. Even so, more than 4,000 companies received private equity investment, a fall of 17 per cent from the level in 2007 when private equity was booming.

A near absence of mega-buyouts accounts for much of the decline in investment since the boom, with just three investments over the €1 billion transaction value mark during 2009. By contrast, the number of growth capital investments increased by 23 per cent, surpassing the number of buyouts.