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Median Net IRRs and Median Net Multiples of IT- vs. Healthcare-Focused Funds – June 2015

by Chloe Wong

  • 04 Jun 2015
  • PE

In recent years, both the healthcare and information technology (IT) sectors have seen an increase in the levels of fundraising activity from new and experienced fund managers, as the number of deals witnessed in these industries remains considerably high. This trend is expected to continue in 2015, and depending on which performance measure is used – net IRR or net multiple – the results can differ greatly when assessing sector-specific fund performance by vintage year.  

Preqin’s Performance Analyst online service contains individual net-to-LP performance data for 2,717 healthcare- and IT-related private equity funds. Of these, 26%, of vintage years 1996-2012, have been identified as focusing exclusively on the healthcare or IT industry*.

As seen in the chart above, Preqin data suggests that when examining the median net multiple, IT-focused funds have, in general, outperformed those which exclusively target the healthcare sector; the exceptions being the dot com crash during the late 1990s and the marginal percentage decrease in funds of vintage year 2007. The median net multiple for healthcare-focused funds sits between the boundaries 1.00 and 1.40, whereas the boundaries for IT-focused funds are much wider, with the median net multiple fluctuating between 0.80 and 2.30. This illustrates that in each vintage year, healthcare-focused funds promote a steadier total value.

If, however, consideration is given only to the median net IRR and to funds of vintage years post 2000, there is less clarity regarding which of the sectors outperforms the other. The latest information shows that in 2012, healthcare-focused funds performed better according to median net IRR, with 13.3% versus IT-focused funds on 8.8%; yet in 2003, IT-focused funds triumphed over healthcare vehicles, with a median net IRR of 14.2% versus 5.2%.   

Investors, therefore, need to take precautions when using any one performance metric to measure a fund’s performance. As this scenario illustrates, there are many variations between net IRR and net multiple, showing contradictive long-term trends. 

*Under Preqin’s classification a fund is deemed as an IT-focused fund if it primarily invests in either one or a combination of these categories: computer services, electronics, gaming, hardware, high-tech, internet, information technology, IT infrastructure, IT security, nanotechnology, network, semiconductors, software, technology and wireless. A fund is classified as a healthcare-focused fund if it targets the following: biomedical, biotechnology, healthcare services, healthcare IT, life sciences, medical devices, medical instruments, medical technologies, pharmaceuticals and predictive medicine. 

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