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Private Equity Horizon IRRs to September 2010

by Bronwyn Williams

  • 08 Apr 2011
  • PE

Private equity horizon internal rate of returns (IRRs) indicate how private equity funds are performing during a defined period (i.e. over one-year, three-years or five-years), and can be used to highlight current trends and developments in the private equity industry. Horizon IRRs are calculated using funds’ net asset values as a negative outflow at the beginning of the period, with any distributions during the period and the funds’ residual values used as a positive inflow at the end of the period. Horizon IRRs are dollar-weighted and net of management fees and carried interest.               

Preqin calculates horizon IRRs using cash flow data for over 1,700 private equity funds. Currently, the private equity horizon IRR for the one-year period stands at 16%, for the three-year period at -2.2%, and for the five-year period at 13.7%.

Analyzing the one-year returns by strategy shows that buyout focused funds are posting a return of 19.6%, fund of funds 13.1%, mezzanine 10.5% and venture capital 9.1% across this period. The three-year period shows all the strategies are in the red, with the notable exception of mezzanine vehicles. The five-year period shows the annualized returns for buyout partnerships is 17.9%, 17% for mezzanine, 6.9% for fund of funds and 4.3% for venture capital focused funds.

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