Just in case there was any lingering doubt that the past year was lousy for buyout firms, Cogent Partners, an investment bank providing sell-side advisory services for the secondary market, is out with a report analyzing first-quarter performance, and the numbers are ugly.
After crunching aggregated fund data from its proprietary database, Cogent estimates buyout funds generated a negative 30.2 percent IRR for the full year stretching from the first quarter of 2008 through the first quarter of 2009. For the first quarter of 2009 alone, the IRR for buyout funds was a negative 8.3 percent. Those numbers compare to negative IRRs of 10.9 percent and 12.4 percent for the same respective time periods for venture capital funds. Cogent said the funds in its research universe represent nearly $700 billion in commitments.
In a comparison of writedowns in net asset values for the most recent first quarter, venture capital firms were slightly more aggressive than their buyout brethren. The average writedown for a venture capital fund in the first quarter was 2.8 percent. Buyout funds came in at 2.1 percent.
The median fund, according to Cogent’s analysis, saw a writedown of 2.6 percent for the first quarter, and 18.9 percent for the full year. The S&P 500 index, the broadest benchmark for the performance of public markets in the United States, saw depreciation of 11.7 percent and 39.7 percent over the same respective time periods. This indicates that while general partners were willing to acknowledge taking a hit on their investments, they weren’t going so far as to move in lockstep with the public markets. In fact, only 15 percent of the funds analyzed by Cogent recorded a greater percentage writedown in net asset value than the S&P 500.
Digging deeper into the numbers for buyout funds, Cogent found the scope of the writedowns varied a great deal between strategies. Small buyout funds saw the slightest impact with the average writedown coming in at 0.4 percent for the first quarter, while large-cap buyout funds and mid-cap buyout funds had writedowns of 4.1 percent and 3.1 percent, respectively, for the same period. Cogent said the 2.5 percent writedown figure for mega buyout funds in the first quarter may have been a product of these funds recording larger writedowns in the fourth quarter.
Things may be looking up for the second quarter, however. Cogent ran some preliminary numbers for peHUB.com, the sister Web site of Buyouts, and found, albeit using a smaller sample size, that the median buyout fund had been written up 1.1 percent for the period. Green shoots, anyone?