US awaits signs of recovery

Signs of recovery in the US private equity market remain scarce with one-year private equity investments recording overall losses of 18.5 per cent, according to Thomson Financial Venture Economics and the National Venture Capital Association. There is a glimmer of hope with performance returns for Q4 2001 showing a slight increase over the previous quarter, reversing the downward trend of the last four quarters.

“The downward trend in venture capital performance numbers seen in recent quarters is an inevitable result as industry performance returns from the triple-digit returns seen during the last boom period back to sustainable levels that are more in line with historical averages,” says John Taylor, vice president of research at the NVCA. Early stage and seed investments put in the worst performance recording a loss of 33.9 per cent. Buyouts fared slightly better with a loss of 14.5 per cent, while mezzanine put in the best performance recording a loss of only 2.2 per cent.

Although recovery is said to be on the long-term horizon, the youngest funds are still struggling amid a weak economy and limited liquidity options and it may be several years before these younger funds realise their current investments.

“It may be some time until we see signs of recovery in the performance figures,” said Taylor. “Once the economy improves and technology spending begins to increase, it will take at least several quarters, if not several years, for private venture-backed companies to mature to the point when they are ready for an IPO or to be acquired by a larger entity.”