LONDON (Reuters) – European private equity returns were 25 percent lower in 2008 as company valuations fell and exits dried up, according to data released on Friday by Thomson Reuters and Europe’s private equity trade body.
Mega buyouts were hardest hit over the short-term, with the fall in net asset value 27.1 percent to year-end, while mid-market buyouts were 17.9 percent down over the year.
“Macro-economic conditions have precipitated a sharp slump in distributions, particularly since 2008, with exit markets particularly difficult,” said Javier Echarri, secretary general of the European Private Equity and Venture Capital Association.
Distributions are the monies returned to investors when a private equity firm sells one of its portfolio companies.
Echarri said short term returns for existing private equity portfolio companies are expected to fall further in the near-term but said investments made in the downturn have historically been the best performers.
Despite the slump in so-called short-term horizons, annualised private equity returns or the internal rate of return (IRR) — which tracks returns from the funds’ inception to December 2008 — were up 10.3 percent in 2008, with buyout funds returning 14.2 percent.
“However, with sustained long-term IRRs private equity still outperforms public equities and bonds and the ‘dry powder’ currently available should provide interesting investment opportunities in the long run given low entry multiples,” said Leon Saunders Calvert, EMEA deals and private equity director at Thomson Reuters.
According to recent data from consultancy firm Preqin, the private equity industry is sitting on $1 trillion of investor commitments — or dry powder — to deploy in areas including buyouts, venture capital, infrastructure and real estate.
(Reporting by Simon Meads; editing by Elaine Hardcastle)