SEATTLE--(BUSINESS WIRE)--According to a new report by PitchBook Data Inc., the leading provider of private equity and venture capital data and analysis tools, private equity remains an attractive asset class that has outperformed the public markets over the last three- and five-year periods. According to the research, the best performers were private equity funds, which outperformed venture capital, fund of funds, mezzanine and real estate. Within private equity, it has been the large buyout funds (more than $1 billion in assets) that have posted the best returns, with a 10% annual return since 2006. Although venture capital funds have mostly struggled, the one exception has been the $150 million to $250 million fund size group, which continues to be a sweet spot for the asset class.
The inaugural PitchBook Fund Returns Report, which will be released on a quarterly basis, details the returns of the alternative asset class broadly defined as private equity, which is made up of private equity, venture capital, mezzanine and real estate. It focuses on historic and current return performance, as well as additional perspective on developments that have impacted IRRs in each asset class.
“The main take-away in the returns data is that the private equity industry is proving resilient and remains an attractive asset class for investors,” said John Gabbert, CEO and Founder of PitchBook Data. “Like the rest of the financial markets, the private equity industry was rocked by the credit crisis and recession, but since the bottom in 2009, private equity returns have made significant strides in their recovery. All areas of private equity posted positive one-year returns in both 2010 and 2011, after having experienced two straight years of negative returns. This has resulted in a significant increase in fund returns multiples and an improvement across the board in median fund IRRs.”
The report was compiled using the PitchBook Platform and its returns data on over 5,300 funds. Highlights are below. To access the complete report, please visit www.pitchbook.com/library.html.
Private Equity Highlights:
- For the twelve months ending June 30, 2011, private equity funds posted a 19% IRR.
- Private equity has outperformed the public markets in three- and five-year returns, with horizon IRRs of 6% and 10%, respectively, compared to 4% and 3% for the public markets.
- Private equity has outperformed venture capital by 7% over the one-, three-, and five-year horizons.
- There is a strong relationship between fund size and fund performance. For the twelve months ending June 30, 2011, funds over $1 billion generated a 13% IRR and funds $5 billion and over generated a median IRR of nearly 25%.
- The 2001 and 2002 vintages are currently the top performing PE vintages of the past decade with median IRRs of 16% and a quarter of all their funds (top quartile funds) posting an IRR of above 28%.
Venture Capital Highlights:
- Venture capital’s five-year horizon IRR is comparable to the public markets at 3% but its one- and three-year returns underperform both private equity and the public markets.
- While distributions to investors have been sluggish, venture capital funds posted strong returns for the first half of 2011 and are on track to mark their best year since 2001.
- Venture capital funds in the $150 million to $250 million group generated the second highest returns for the one- and three-year horizons and the highest for the five-year horizon.
- Fundraising for venture capital in 2011 fell both in number of funds closed (43) and capital raised ($13.8 billion).
- The 2008 vintage is currently the top performing VC vintage of the past decade with a median IRR of 3% and a quarter of its funds (top quartile funds) posting an IRR of above 12%.
Fund of Funds Highlights:
- Fund of funds performed remarkably well on average, and consistently over time. As an asset class, fund of funds outperformed all other private equity fund types for the 12 months ending June 30, 2011.
- The average fund of fund returns multiple for vintages 2000-2010 is a strong 1.61x but the lack of distributions to limited partners is a concern.
- The 2009 vintage is currently the top performing fund of funds vintage of the past decade with a median IRR of 12% and a quarter of its funds (top quartile funds) posting an IRR of above 17%.
Mezzanine Highlights:
- While mezzanine funds do not produce returns as high as private equity, these funds produce a very consistent IRR with a small variation.
- The median IRR for each vintage year from 2000 to 2010 has been positive, with 2002 vintage funds generating the highest returns at 16.5% and funds from 2007 producing the lowest IRR at 1.9%.
- Younger vintage funds, such as 2008 and 2009, have already made significant distributions to their limited partners.
Real Estate Highlights:
- One-year returns from real estate funds have shown remarkable improvement since the real estate bubble burst in the latter half of the decade, climbing from negative 38% IRR in 2009 to median IRR of 2.19% in 2010 and 16% for the first six months of 2011.
- Real estate investments have underperformed every other major private asset class; however, younger vintage funds have shown promising returns.
About PitchBook Data
PitchBook Data, Inc. is an independent research firm providing superior intelligence on the private equity and venture capital industries. PitchBook's mission is to provide its clients with the highest quality information on the entire private equity lifecycle in a state of the art online platform that is powerful and easy to use. Better Functionality. Better Data. Better Decisions. www.pitchbook.com