Buyout Funds Having Worse Year than VC Funds

Want to insult a buyout pro? Don’t tell him that his fund was marked down. Tell him that it was marked down more than a venture fund was marked down. Ouch. Sting. Burn.

Cambridge Associates has released new fund performance data, which shows that private equity firms (buyout, growth equity, mezz) lost more value for limited partners than did VC firms, during the first three quarters of 2008. Not just actual dollars — of which buyouts simply has more — but in terms of percentage (net of fees, carried interest and other expenses). And given what we know about Q4, it’s a reversal of fortune that can be expected to accelerate.

Specifically, non-VC private equity firms were down 8.9% through Q3 2008, compared to a negative 4.26% mark for VC funds. The gap is even more pronounced for one-year performance (Q3 07-Q3 08), where buyout firms are at -5.5% compared to -0.9% for VC funds. They both suck, of course, but VC sucks less.

Things flip around once you begin looking at three-year and five-year performance. Venture has the lead on 10-year, but expect that to disappear once the tin mark signifies the dotcom bust rather than the dotcom boom.

The Cambridge Associates data is based on a sample of 748 private equity firms raised between 1986-2008, and 1,238 VC funds raised between 1981-2008. Also worth noting that Cambridge’s results are more favorable to the VC industry than are Venture Economics’ results. Not in terms of this specific issue of YTD buyouts vs. VC, but just in terms of overall VC benchmarks.

You can download the documents here.

1 Comment

  • When a fund stops self-reporting to Cambridge, does Cambridge still keep it in their numbers? For example, if a 1998 vintage fund had an 30% IRR at the time of the 2003 Cambridge report due to some early exits, but then never had an exit again and just stopped reporting as its IRR declined, when Cambridge reports its 2008 numbers for 1998 vintage funds, does it include this fund at its last-reported 30% IRR (which would be misleading), or does it drop it from the database altogether? Or,what if that 1998 fund successfully exited all its deals and had a 30% IRR overall, and closed the fund so it’s no longer reporting, does Cambridge remove it or keep it in? (if they remove all funds that have finished their term, eventually there will be no old funds left in the database, so we’d never be able to see how a 1998 fund actually performed). I have asked 2 people from CA this question, and they said “good question.”

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