Middle Market PE Out-Performs Mega-Funds

(Reuters) – Mid-market buyout shops top private equity fund performance over the medium term, as their larger counterparts struggle to sell on their portfolio companies and generate returns for investors, a new study said.

In its 2008 performance measurement survey published on Friday, the British Private Equity and Venture Capital Association (BVCA) said funds that focus on mid-sized deals registered annualised returns of 24.8 percent over the last five years, compared with mega-buyout funds’ returns of 20.3 percent.

Payments of capital to investors in mega-buyout funds have all but dried up as plummeting valuations and a lack of debt finance has left firms unable to sell their portfolio companies.

While not immune from the credit crisis, mid-market deals and small buyouts that rely on less leverage have continued.

“It comes as no surprise that the sands are shifting in the U.K. private equity landscape, which in recent years has been dominated by the large buyouts generating the lion’s share of medium term returns,” said Ashley Coups of auditor PricewaterhouseCoopers.

PricewaterhouseCoopers [PWC.UL] conducted the survey for the BVCA, analysing performance figures from the trade association’s 458 members.

Small buyout firms returned 18.7 percent over a five-year time-frame and managed to generate returns of 29.4 percent in 2008, the survey found. Mid-market firms posted returns of 4.8 percent while large buyout shops registered negative returns of -14.4 percent in 2008.

Across the board, private equity returns in 2008 were -9.8 percent, compared with U.K. equities returns of -29.6 percent. (Editing by Rupert Winchester) (simon.meads@thomsonreuters.com; +44 20 7542-9969; Reuters Messaging: simon.meads.thomsonreuters.com@reuters.net))