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Performance of All Private Equity - J-Curves of Net IRR

by Gary Broughton

  • 06 Jul 2012
  • PE

Examining the “J-curve” of median net IRRs by vintage year is a common way to assess the performance of private equity funds over their typical investment periods. Preqin currently holds fund level performance data for around 6,100 private equity funds and over 15,000 historic data points. This information can be used to plot the median net IRRs at each quarter end for funds by vintage year, creating  representative J-curves for each vintage year across all private equity fund types.

For a typical private equity fund, returns tend to be in the red during the early part of a fund’s life; however, net returns begin to transition into the black as the investment cycle progresses and fund managers both add value to their investments and begin to distribute capital back to investors. All vintages within the sample of vintage years 2005-2008 are currently showing positive median IRRs, with vintage 2008 funds currently showing the highest median figure of 8.0% through December 2011. The analysis indicates that the net trajectories of vintage 2005 and 2006 funds resemble ‘W-curves’, as turmoil in the financial markets during 2008 and 2009 resulted in sharp falls in returns followed by subsequent increases as markets recovered.

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