Sep 14 2017 | 10:38pm ET
The buyout market currently accounts for more than half of the $2.6 trillion global private equity industry, according to research from data provider Preqin, while average returns for buyout funds exceeded 10% in every vintage year since 2006.
Moreover, the spread of returns has been significantly smaller than in the growth or venture capital sectors, Preqin said in a statement Thursday. Institutional investors have committed huge amounts of capital to these funds, in part because of strong long-term returns.
However, these returns have varied widely among buyout funds focused on different sectors. For instance, while more than a third of IT-focused funds delivered net IRRs in the top quartile of all buyout funds, more than a quarter of those focused on industrials are in the bottom 25%.
Preqin’s research was published in the company’s September Private Equity & Venture Capital Spotlight. Other highlights:
“Buyout funds are the stalwart of the private equity industry,” commented Christopher Elvin, head of private equity products for Preqin. “Part of their enduring appeal to investors has been the ability of buyouts to deliver strong, diversified long-term returns even in challenging circumstances. Even across the period of the global financial crisis, median returns from buyout funds barely dropped below 10% on an annualized basis.
“However, while buyout fund performance has been consistent overall, there is more variance among those vehicles focusing on specific sectors,” he added. “As might be expected, information technology-focused funds have shown some of the highest returns, in line with the incredible expansion of that sector over the past 30 years. Performance in industrial and energy sectors is lower, however, perhaps partly due to the difficulties of pursuing commodities-related strategies. Investors should certainly be aware that while sector-specific funds can deliver some of the highest returns of any buyout fund, the potential for reward comes with increased risk.”
Founded in 2003, Preqin is a leading source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. The company's Hedge Fund Online service is a leading source of intelligence on the hedge fund industry, with performance information for over 16,000 hedge funds across strategies and geographies. More than 47,000 professionals in 90 nations use the company’s products.
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