Performance up-tick

Private equity performance has continued to bounce back from its post-millennium lows with the average fund showing a preliminary 24.1% one-year internal rate of return.

The Thomson Financial-collated data on behalf of the European Private Equity and Venture Capital Association (EVCA) found the one year return in 2004 had been 14.1% and 2003 it was 0.8%, with the increase primarily due to the bounce bank in returns from venture capital and lower write-offs.

Failed investments made up only 5.5% of the total €24bn (US$29bn) of divestments at cost, compared to 2004’s 9.7% out of a €19.6bn total.

VC funds posted an averaged 25.4% return last year while buyout funds returned 20.9%. Over 10 years to end-December, the average private equity fund’s net horizon returns was 10.2%, compared to 11.7% in the decade to end-2003 and 16.5% in the period to 2001 when returns peaked.

Since inception of data collection in 1980, the average fund has returned 9.6%, net of management fees and carried interest (the profits taken by the vehicle’s manager), against 9.5% for the quarter century to end-2004, according to Thomson Financial.

Buyout funds have, on average, proved more successful than their VC counterparts, according to the EVCA. Buyout funds were up 12.4% since 1980 while VCs were up 5.6%. But in both areas the top quartile fund managers were much more successful on average than their peers: 35.3% and 23.9%, in their respective sectors.

James Mawson