Right up until the middle of 2008, private equity (meaning buyout, venture, mezzanine, distressed debt, fund of funds etc.) had an excellent long-term record of outperforming other asset classes. Whichever way you looked at the analysis – bottom up from individual fund returns, or topdown from the asset class performance of major pension funds and endowments – the answer was the same: private equity had out-performed other asset classes and been a significant driver of institutions’ returns.
The latest research from Preqin shows that for 2008 the All Private Equity average showed a decline of 17% over the year. There was a wide range in terms of how different fund strategies were impacted – from an average 11% decline for venture funds through to predictably worse declines for buyout and real estate funds - 22% decline and 34% decline respectively. So private equity has fared reasonably well during 2008 – an average valuation decline of 17% is severe enough, but it compares very favourably with the S&P’s loss of 37%. Sadly, the analysis confirms that, as expected, the pain has been greatest in the most exposed parts of the market – recent large buyout funds and real estate funds.
To see the full analysis please view Private Equity Spotlight June 2009