Public Stocks Still Lag PE Performance

Private equity firms continue to outperform the S&P 500, according to a report on the fourth quarter 2005 performance index by Thomson Financial (publisher of Buyouts) and the National Venture Capital Association (NVCA). The index is based on returns from more than 1,800 private equity and VC partnerships.

Long-term performance for buyout and venture funds remained steady, with 20-year returns of 13.3% and 16.5%, respectively. For the 10-year time-frame, buyout funds returned 9.2%, while venture funds returned 23.7 percent.

Short-term performance also showed quarter-to-quarter stability, with one-year buyout returns showing a slight decrease from 35.2% in the third quarter to 31.3% in the fourth. Venture returns during the same period exhibited a small drop from 17.9% in Q3 2005 to 15.6% in Q4 2005.

“We are keeping our eyes firmly on the venture-backed exit markets in hopes that we will start to see a healthier IPO market in 2006,” said Mark Heesen, president of the NVCA. “Otherwise, we could begin to see the impact in performance across the board.”

The venture-backed IPO market saw a volume and valuation drop off during the fourth quarter with 17 venture-backed companies going public. The NVCA has said that private equity performance was also impacted last year when, in October, Federal Reserve policymakers raised short-term interest rates. —A.G.