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Performance of Mega, Large, Mid-Market and Small Buyout Funds

by Etienne Paresys

  • 23 Oct 2009
  • PE

More than anything else, the performance of buyout funds is critical for LPs, as a large portion of their capital is currently committed to large and mega buyout funds. These funds also have a significant impact on the overall private equity return figures because horizon returns are significantly influenced by fund capitalisation. This results in the performance of the entire private equity industry being very similar to that of the buyout sector.

Breaking up buyout funds by their fund capitalisations confirms that buyouts are posting significantly different returns according to their sizes. Across all sizes, buyout funds have generated comparable performances over a five-year period, but size is a more distinguishing factor for shorter periods. Mega buyout funds are posting the lowest one-year returns at -37.6%, while small buyout funds seem to be much less affected with -14.1% over the same period. Over the one- and three-year periods, the data suggests that the larger buyout funds are, the worse their returns are likely to be. The poor performance generated by large and a mega buyout funds perfectly explains why many LPs are currently avoiding committing fresh capital in this area. Evidence of this trend has been gathered by a recent survey conducted by Preqin – for more information please see our recent Investor Attitudes Survey.

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