PE outperforms rivals

The UK private equity industry outperformed both the UK pension funds and the FTSE All-Share index in 2007 according to figures released by the British Private Equity and Venture Capital Association (BVCA) alongside PricewaterhouseCoopers and fund-of-funds manager Capital Dynamics.

The research, which saw the participation of all 422 BVCA members, revealed that total UK private equity recorded ten-year returns of 20.1% compared with 6.2% for the FTSE All-Share index and the 7.1% average return from total pension fund assets.

Private equity in the UK has now increased its returns since inception (funds raised between 1980 and 2003) for the third year running, up to 17.3% from the 16.9% recorded in 2006.

Simon Walker, chief executive of the BVCA, said: “Private equity is all about providing long-term capital to business so returns over the long-term are what really count. These excellent performance figures show why so many pension fund trustees and other institutional investors want to invest in private equity. We are keen to encourage more investment that will benefit UK pensioners directly. The BVCA 2006 Report on Investment Activity indicates that UK Pension Funds invested £2.1bn, or 6% of total funds raised; compare that with overseas pension funds investing £8bn, or 23% of funds raised.”

Breaking it down into categories, buyouts from small to large, performed strongly, but venture funds continued to struggle. Medium to long term IRRs for post-1996 venture funds recorded 1.6% over the last three years, -1.4% over the last five, and -1.8% over the last ten as the effects of the crash continue to be felt within UK venture portfolios.

By way of contrast, post-1996 large buyout funds recorded a 44% IRR over three years, falling to 32.1% and 23.9% for five and ten years respectively.