Examining the horizon IRRs for private equity funds is a standard method of gauging how well the industry has performed over a defined period. Using Preqin’s Performance Analyst online service, we look at the rolling one-year returns from December 2000 through to September 2013 for the private equity industry as a whole, as well as the main private equity investment strategies – buyout, fund of funds, real estate, mezzanine and venture capital. Preqin calculates horizon IRRs using cash flow data for over 2,500 private equity funds.
Over the one-year period to December 2000, the private equity industry as a whole posted returns of 10.1%, while venture capital funds produced returns of 38.1% over the same period, a level that has not been reached since.
The highest one-year returns for the various fund strategies are witnessed over the one-year period to December 2005, where real estate funds yield the highest one-year return of 60.8%, and the other private equity strategies produce returns in the range of 15.0% to 30.0%; however, venture capital funds post one-year returns of 4.5%.
In the one-year period to September 2013, the one-year returns for each strategy are much more consistent, falling within a smaller range of 11.7% to 16.8%. Interestingly, over this period, venture capital funds returned 16.3%, more than the returns earned by the private equity industry as a whole, fund of funds and mezzanine funds which earned returns of 15.5%, 11.7% and 12.6% respectively.