Horizon IRRs provide a snapshot of the private equity industry over a set period of time, and Preqin tracks these over one-, three-, and five-year intervals for small, mid-sized, large and mega buyout funds. This measure, which is explored more thoroughly in the 2013 Preqin Private Equity Performance Monitor, provides a useful insight into the trends and developments in different areas of the industry.
The calculation uses the net asset value (NAV) of all active funds at the beginning of the period and takes into account all cash flows during the period observed, followed by the NAV at the end of the period. Preqin holds cash flow information on over 2,300 private equity funds. The horizon IRRs are all annualized, dollar weighted and net of management fees and carried interest.
Across the one-year horizon through 31 December 2012, funds with a small buyout classification returned 15.5%, mid-sized buyout funds returned 13.9%, large buyout funds 12.3% and mega buyout funds generated the greatest return of 16.2%. Over the three-year horizon, small buyout funds produced the greatest return of 17.2%, whilst mid-sized, large and mega buyout funds generated returns of 13.7%, 15.2% and 15.5% respectively. Over the longer term of 5-years, small buyout funds once again provided investors with the greatest return of 8.5%, followed by mid-sized funds (6.5%), large buyout funds (4.7%) and mega buyout funds (4.1%).
The data shows that mega buyout funds have performed best over the one-year period through 31 December 2012, whereas small buyout funds produced the greatest returns over the longer horizons of three and five years. To compare: over the one-year horizon to 31 December 2011, small buyout funds produced the greatest returns (12.8%), whilst over the three-year horizon, mega buyout funds generated the best returns (16.9%).