The Return of Private Equity Returns –

Private equity funds have posted positive one-year returns for the first time since 2000, according to figures released earlier this month by Thomson Venture Economics (publisher of Buyouts) and the National Venture Capital Association.

The data is a lagging indicator ending on Sept. 30, 2003. It shows one-year private equity returns of 1.3%, which is a strong improvement over the 6.2% mark through June 30, 2003. Three-year private equity returns still stand in negative territory with 10.7%, but that nonetheless represents a superior performance to either the Nasdaq or S&P 500, which lost 21.3% and 11.5% of their values, respectively.

But not all of the private equity numbers were positive. While both buyout and mezzanine firms produced positive one-year returns, venture capitalists almost brought down the ship by posting a miserable 17.8% mark. This includes 38.9% for later-stage VC firms, -18.3% for early-stage VC firms and -0.4% for balanced VC firms. All of these numbers are improvements on three-year returns especially in the case of balanced VCs but still do not come close to the positive results culminated over the past five, 10 or 20 years.

In fact, the only real bright spot for VCs might be quarterly returns, which actually show venture firms outpacing buyout firms for the third quarter of last year. Both are in positive territory, although just barely.

“While this latest performance analysis may indicate a small short-term improvement, the movement into positive territory after a three-year hiatus has to be a welcome sign for general partners and institutional investors alike,” says Jesse Reyes, vice president and director of private equity research with Thomson Venture Economics.

Reyes added that the bump was caused by both an increase in exit activity and improved portfolio company valuations.