US private equity returns improved in the short term in Q1 2006, with both venture capital and buyout funds showing improved returns over one, three and five years compared to Q4 2005 and Q1 2005. Long term performance remained steady and continued to outperform both the S&P 500 and NASDAQ for the 10 and 20 year horizons.
One year VC returns posted a 19.8% return for Q1, up from 13.3% in Q4 2005. Five year returns remained negative despite a slight improvement, up to -4.4% from -6.7% in the previous quarter, reflecting the continued fallout from the bursting of the tech bubble. Ten and 20 year returns remained steady at 22.7% and 16.5% respectively.
One year buyout returns saw a very slight increase posting 25.5% for Q1 2006 compared to 25.3% for Q4 2005. Ten and 20 year buyout returns were relatively steady at 8.9% and 13.3% respectively.
“The stability of the long term returns for both venture capital and buyouts makes these asset classes very attractive for investors looking for a higher return then traditional markets. We expect this news will continue to support a vibrant fundraising market for both venture capital and buyout funds. Having said that, this record availability of new capital will put increasing pressure on firms to remain disciplined to not raise more than can generate attractive returns,” said Joshua Radler, assistant project manager of Thomson Financial.