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Geographic Risk/Return Profiles of All Private Equity Strategies – November 2015

by Ciantelle Lawrence

  • 12 Nov 2015
  • PE

Amid uncertain economic conditions in the European Union (EU) and Asia, it is important to assess the performance of the private equity industry with respect to funds’ geographic foci to help gauge which regions will provide the greatest financial returns. Preqin’s Performance Analyst online service provides insight into the risk/return of all private equity strategies split by geographic focus.

The chart above shows the risk/return profiles for funds with a focus on one of the four primary geographic regions – North America, Europe, Asia and Rest of World – for vehicles of vintage 2000-2012. As illustrated above, returns (measured by median net IRR) across each region all fall within a range of 9.5-11.0%. In contrast, the risk (measured by standard deviation of net IRR) shows more variability, with a range of approximately seven percentage points.

Investment strategies generating the most desirable performance are positioned to the right of the chart. Asia-focused funds witnessed the highest global median returns at 11.0%, suggestive of potential opportunities for fund managers and investors within the continent. Europe-focused funds appear to be the riskiest with a standard deviation of 23.1%; these funds also have the lowest median returns at 9.5%. At 15.5%, North America-focused vehicles have the lowest standard deviation overall.

The characteristics of each individual geographic region cause variations in the risk/return profile, and therefore external factors can influence fund performance at any given point in time. As such, assessing risk/return trade-offs between private equity strategies in isolation should be analyzed with caution.

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