2001 preliminary PE performance figures

Private equity and venture capital performance for 2001 was announced at the EVCA’s annual investors symposium in March this year. The impact of the uncertain economic environment of recent years is reflected in the one-year horizon returns of the private equity asset class in Europe with a pooled IRR (internal rate of return) of -2.3 per cent for total private equity. Most importantly, given private equity’s long term investment horizon, long term overall returns remain robust in 2001 at 14.2 per cent annualised IRR for total private equity with 31.7 per cent for top quarter funds.

The sample data in the survey, conducted by Venture Economics in co-operation with EVCA, includes a total of EURO107 billion of committed capital in 649 funds (of which 571 are mature, i.e. formed 1980 to 1999) reflecting continued improvements in the representative of this sample. This year’s Investment Benchmarks Study includes data through December 2001, providing the latest and most representative pan European performance measurement information, and allowing for comparison with other asset classes.

Long versus short term

While private equity is a long term business and short term numbers have but an indirect correlation with global performance, total private equity mirrored the impact of recent economic challenges returning a 2.3 per cent one-year horizon IRR (short-term) versus a 16.5 per cent ten-year horizon IRR (long-term). All stages of investment saw a decrease in one-year horizon IRR with the main drop being seen in early stage at 8.9 per cent. For development and buyout, one-year returns – while positive at 11.4 per cent and 2.2 per cent – were inferior to long term returns, which at 13.8 per cent and 18.7 per cent respectively, for ten-year horizon, remained healthy.

Long term overall returns robust in all stages

2001 saw a 14.2 per cent annualised pooled IRR since inception of fund for total private equity, with particularly strong numbers for buyouts (18.5 per cent IRR). Venture stages also demonstrated favourable performance with 12.6 per cent IRR since inception. Although early stage companies were at the forefront of recent economic challenges, long-term returns for this stage remained resilient with a 9.2 per cent IRR since inception.

Market conditions

Lower company valuations led by the technology sector, difficulties in exit routes and a weak European economic climate contributed to this decrease in returns in European private equity.

Max Burger-Calderon, chairman of the EVCA investor relations committee, said: “The findings show us the clear impact of the economic environment on short term returns. No doubt this difficult year has supplied many valuable lessons to private equity practitioners, which can be applied in coaching tomorrow’s promising growth companies. Nevertheless, the results also confirm the long term robustness of the European private equity asset class to weather storms and to produce sustained returns throughout economic cycles.”