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Rolling One- and Three-Year Horizon IRRs – November 2013

by Hayley Wong

  • 19 Nov 2013
  • PE

Examining the horizon IRRs for private equity funds gives an indication of how the private equity industry has performed over a defined period. This analysis looks at the rolling one- and three-year returns from December 2000 through to March 2013 for the whole private equity industry and the main private equity investment strategies – buyout, venture capital, fund of funds, mezzanine and real estate. Preqin calculates horizon IRRs using cash flow data for over 2,500 private equity funds.

Analyzing the rolling one-year horizon IRRs first, the one-year to December 2000 returns for the overall private equity industry stand at 10.1%, while over the same period venture capital funds post the highest returns of 38.1%. The highest one-year returns for the fund strategies are witnessed by the one-year to December 2005 returns, when 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%. Examining the one-year returns to March 2013, the overall private equity industry reports returns of 11.3%, while buyout and mezzanine funds post returns of 13.4% and 12.3% respectively, and the other strategies produce returns in the range of 5.0-7.5%.

Analyzing the three-year returns to December 2000 the majority of the private equity investment strategies produce returns between 3.0% and 20.0%, except for venture capital funds, which produce three-year returns of 62.4%. Subsequently, venture capital funds have not produced three-year returns as high as this due to the effects of the dot-com crash. The aftermath of the financial crisis can be seen in the three-year returns to December 2009 and 2010, when returns are no higher than 7.0% across all of the private equity fund strategies; however, improvement in returns can be seen in the three-years to December 2011 figures, with returns of 7.0% and higher. For the most recent quarter returns, three-years to March 2013, all of the investment strategies post returns in the range of 10.0% and 16.0%, except for real estate funds, which yield a return of 6.8%.

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