Typically, private equity IRRs are negative in the first few years of a fund’s life, increasing over time as investments are exited, and then stabilizing in the final years of the fund’s life. IRRs following this trend form a J-curve trajectory. The financial crisis has altered these J-curves, which could now perhaps be better described as W-curves. Plotting the median net IRRs for each quarter-end shows private equity IRRs for the vintages 2004 to 2008 decreased steeply from September 2008, generally reaching their lowest point in Q1 2009. Since Q2 2009, net IRRs have improved but funds of vintages 2004 to 2006 have not yet reached the level at which they stood before the financial crisis. It is likely that IRRs will continue to improve over the following quarters but the J-curve pattern is now irreversibly modified.
For more information about private equity performance, please see how Preqin’s Performance Analyst can assist you.