Buyout funds are staging a rebound. And a new report out from Preqin just might make it easier for them to raise money. According to the London-based specialist in alternative investment data, all four sub-categories of private equity made money for the 12-month period ended June 2010, the most recent for which it has calculations.
Altogether, private equity returns came in at 17.6 percent for the one-year period. The three-year return came in at a loss of 1.9 percent while the five-year annualized return was 15.7 percent.
These returns compare with 14.4 percent for the Standard & Poor’s 500, 5.7 percent for MSCI Europe and 23.2 percent for MSCI Emerging Markets over the one-year period. All of the indices lost money over the three-year period while over the five-year period the returns of MSCI Emerging Markets led the way with a 12.7 percent return. Preqin, however, cautions comparing PE returns to liquid listed markets since private equity investors are committed over a long period of time.
In any case, buyout funds — which account for the largest slice of the industry’s capital — led the way in the most recent period, racking up a 20.7 percent return for the 12 months ended last June. Venture capital returned 8.4 percent, fund of funds 11.6 percent and mezzanine 6 percent. “The June 2010 returns are based on a starting point of June 2009, when the returns began to show a recovery, and therefore are not as high as those in March 2010, which are based on a starting point of March 2009 when returns were at their lowest point,” Preqin stresses in its comprehensive report.
The story is different if you go back three years. Over that period, buyout funds lost 2.2 percent compared to a gain of 7.8 percent for mezzanine, a 1.1 percent gain for fund of funds and a 0.9 percent loss for venture.
However, the five-year period is more consistent with the most recent one-year cycle. Preqin figures buyout funds generated an annualized return of 19.3 percent, mezzanine funds 15.3 percent, funds of funds 6.9 percent and venture funds 5.8 percent.
Size of the fund clearly mattered over the short run. Preqin points out that mega-sized buyout funds posted the highest one-year return: 23.6 percent. Small and mid-market buyout funds generated returns of 19.1 percent and 17.9 percent respectively. However, over the three-year period, mega buyout funds generated the lowest returns (minus 4 percent) while mid-market and small buyout funds made money, generating returns of 4.7 percent and 4.9 percent respectively. Alas, over the five-year period the returns for the various buyout sizes came in closer to the 20 percent level
