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Has Distressed Private Equity Met Expectations? – November 2012

by Vasilisa Starodubtseva

  • 23 Nov 2012
  • PE

Institutional investor interest in distressed private equity funds increased significantly as a result of the financial crisis, with fundraising for this strategy remaining more resilient than for other private equity fund types. Using Preqin’s Performance Analyst, it is possible to see whether distressed private equity funds active during the downturn have met these increased expectations. Performance Analyst currently holds recent performance figures for over 240 distressed private equity funds. These include distressed debt, turnaround and special situations funds.

Comparing the median returns of recent distressed private equity funds to those of recent buyout funds, it is evident that distressed private equity funds have significant outperformed buyout funds. Vintage 2008 distressed private equity funds currently have a median net IRR of 14.0%, while the figure for buyout funds of the same vintage stands at 8.4%. Distressed private equity funds with a 2009 vintage have a median net IRR of 15.8%, compared to buyout funds at 9.8%.

This strong performance suggests that the increased LP appetite for distressed private equity funds has met with expectation, and that distressed private equity fund managers have been successful in capitalizing on the events caused by the financial crisis and the subsequent economic downturn. However, it should be noted that the funds analyzed here are relatively early in the private equity investment cycle and performance is likely to change over time as the funds mature.

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