By Mathieu Robbins
LONDON (Reuters) – Long-term returns for UK private equity rose again last year, outperforming both the stock market and pension funds, the UK’s industry trade organisation said on Monday.
A survey published by the British Private Equity and Venture Capital Association (BVCA) said buyout firms made average returns of 20.1 percent a year in the decade through 2007, while the FTSE All Share index offered 6.2 percent and pension funds 7.1 percent a year.
“Private equity is all about providing long-term capital to business so returns over the long term are what really count,” said Simon Walker, chief executive of the BVCA.
“These excellent performance figures show why so many pension fund trustees and other institutional investors want to invest in private equity.”
However, the figure is still below the traditionally touted industry goal of achieving compound returns of 25-30 percent a year.
Buyout firms typically buy assets for three to five years then sell them on, making their returns by accurately calling the market, revamping businesses owned and using debt to boost equity.
In recent years, what was once viewed as an upstart and relatively risky industry has entered the mainstream and now raises its investment capital from increasingly varied sources including pension funds.
“We are keen to encourage more investment that will benefit UK pensioners directly,” said Walker.
“The BVCA 2006 Report on Investment Activity indicates that UK pension funds invested 2.1 billion pounds, or 6 percent of total funds raised; compare that with overseas pension funds investing 8 billion pounds, or 23 percent of funds raised.”
(Reporting by Mathieu Robbins; editing by Sue Thomas)