Potential for Investors in Buyout Funds

by John Mather

  • 03 Jul 2012
  • PE

In Q3 2012 there were 251 buyout funds seeking capital globally with an aggregate target size of $213bn. In such a crowded fundraising environment it is becoming increasingly important for investors interested in buyout vehicles to identify the best managers.

One of the most important indicators of GP ability is the performance of their previous vehicles, especially during times of economic stress.  An examination of the IRR of 822 buyout funds with vintages 2000-2009 highlights the spread in performance between the top and bottom performing fund managers.  The top performing fund within this group had a net IRR of 116%, and for a manager to place within the top quartile a net IRR of 20.9% or above was required. Funds within the bottom quartile had a net IRR of 4.5% or less, whilst the median fund had a net IRR of 11.2%

Analysing the performance of buyout vehicles by geographic focus can also help identify the most attractive investment opportunities for an LP. Using funds with a vintage of 2000-2009, the median North American-focused fund has a net IRR of 11.2% compared with European-focused vehicles with a median net IRR of 7.9%. The median Asian-focused buyout vehicle from these vintages has a net IRR of 11.9%.

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