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The performance of distressed private equity funds

by Etienne Paresys

  • 06 Nov 2009
  • PE

Distressed private equity is a popular private equity investment strategy, but remains a relatively small sector of the industry. By combining performance returns from 166 distressed debt, special situations and turnaround funds using data collected from a range of public sources and via fund manager contributions, Preqin has collected a sufficiently large pool of fund information to accurately evaluate the performance produced by these specialist fund types.

Distressed debt, special situations and turnaround funds generated good median IRRs, in the region of 10%, for the vintages 1996 to 1999. Their performance has been excellent for the vintages 2000 to 2005, with median IRRs varying between 15% and 30%. Funds of vintage 2002 have produced the best returns, with a median IRR of 29.2%. As for many other fund types, the performance delivered by the most recent distressed private equity funds is not as good. 2005 vintage funds are currently showing a median net IRR of 5.3%, and the figure for funds of vintage 2006 is currently negative (-9.1%).

This asset class is heavily influenced by the global economic conditions, as the level and quality of investment opportunities will vary significantly during recessionary or growth periods. The current economic situation should offer plenty of opportunities for distressed private equity players.

For more information on private equity performance across all strategies, please see how Performance Analyst can help you.

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