Top Euro Justify Investors’ Confidence –

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European venture capital and private equity funds formed since 1980 generated a 25% net IRR on an ecu basis for the year ended June 30, 1998 according to preliminary results from the 1998 Investment Benchmarks Report: European Private Equity study undertaken by Venture Economics and Bannock Consulting. The study sample comprised ecu 19.2 billion ($21.2 billion of capital committed to 254 mature funds, defined as buyout funds older than two years and venture funds older than four years.

LBO Funds Prove Historically Solid

Buyout funds emerged as the strongest performers overall, delivering a 14.5% pooled IRR from inception, with the top-quartile funds in this category posting a 30% IRR. These figures compared with an 8.3% pooled IRR for all venture capital funds (top quartile: 20.2%) and a 25.5% top-quartile IRR since inception for all mature European private equity funds.

Among the total top-quartile population, buyout funds also displayed the highest realized returns measured by distributed proceeds as a multiple of paid-in capital. The survey showed these funds had realized 1.43 times committed capital and, taking residual portfolio value into account, had multiplied committed capital by a factor of 1.96. However, early-stage and balanced venture funds and generalist vehicles outperformed buyout funds when both realized and unrealized values were taken into account.

Returns from buyout funds appeared to have stabilized since the 1997 Report identified a pooled upper-quartile IRR of 41.9% …

Measured over one year, generalist funds delivered a pooled IRR of 31.3% compared with 29.8% for early-stage funds and 17% for buyout funds; over 10 years, however, buyout funds delivered a pooled IRR of 14.9% compared with 9.3% for all venture capital funds and 12.1% for generalist vehicles.

Returns from buyout funds appeared to have stabilized since the 1997 report identified a pooled upper-quartile IRR of 41.9%, a one-year return of 32.7% and a cumulative return since inception of 17.6% (measured to December 1996).

Early-stage venture funds, however, have demonstrated a strong improvement in performance: the average IRR for this category since inception to June 1998 stood at 10.9%, with a top quartile average of 22.4%, whereas the comparable figures measured to the end of 1996 were 5.7% and 13.0%, respectively.

Results Swayed by Short-Term Gains

One-year returns are a notoriously poor yardstick of performance for private equity, since they are heavily influenced by the exit climate in that 12-month period. Comparison of the three- and five-year pooled returns measured to June 1998 and December 1996, however, suggested the performance of European private equity as a whole has improved in recent years: three-year returns have risen to 19.1% from 13.6%, and five-year returns to 14.7% from 13.8%. The five-year performance of venture, buyout and generalist funds all have consistently improved since the late 1980s. In addition, the performance variation between the different stage categories of funds has decreased.

… But buyout funds emerged as the strongest performers overall, delivering a 14.5% pooled IRR from inception, with the top-quartile funds posting a 30% IRR. These figures compared with an 8.3% pooled IRR for all venture capital funds.

The full 1998 report contains statistical measurements, including distribution and valuation ratios, from data on 375 funds formed between 1980 and 1997 with approximately ecu 39.2 billion ($43.1 billion) in committed capital.





Table 1: European Private Equity Funds’ Net IRRs


            (Inception to June 30, 1998)


Stage Focus       Number    Pooled    Pooled IRR (%)  Pooled IRR (%)


                 of Funds     IRR (%) for Top Quarter  for Top Half   


Early-stage           34      10.9       22.4               20.1


Development           56       7.5       18.1               12.1


Balanced Venture      26       6.6       25.1               13.6


All Venture Capital  116       8.3       20.2               14.3


Buyouts               72      14.5       30.0               25.3


Generalist            66      11.6       23.1               13.5


All Private Equity   254      11.6       25.5               15.6


Source: 1998 Investment Benchmarks Report: European Private Equity








Table 2: European Private Equity Funds’ Net IRRs


              (Pooled IRRs to June 30, 1998)


Stage Focus   One-Year (%) Three-Year (%) Five-Year (%) Ten-Year (%)


Early-stage         29.8         17.4            16.6         12.2


Development          8.7         11.6            11.2          8.3


Balanced Venture    10.4         19.9            10.9          7.6


All Venture Capital 17.5         15.8            12.8          9.3


Buyouts             17.0         14.5            14.3         14.9


Generalist          31.3         22.5            15.4         12.1


All Private Equity  25.0         19.1            14.7         12.2


Source: 1998 Investment Benchmarks Report: European Private Equity