EUROPE - Investors in European private equity and venture capital are still in for a rocky ride despite "solid" returns over 2002.
Preliminary figures from the European Private Equity and Venture Capital Association reveal an annualised pooled internal rate of return (IRR) of 11.5% - measured since fund inception in 1979 - across all stages.
However, short-term returns, measured using one and three-year horizon IRRs, plunged to –8.2% and +4.1% respectively due to market corrections. This suggests that the industry has not escaped the difficult global economic conditions, which have led to lower company valuations and worse exit conditions (both M&A and IPO) , said the EVCA.
This is the sixth annual performance study, conducted by the EVCA, in conjunction with research company Thomson Venture Economics.
Javier Loizaga, chairman of the EVCA investor relations committee, said: “The findings illustrate that while the asset class did not escape the effects of global economic difficulties during 2002, it is clearly able to withstand harsh conditions and to outperform public indices... .”
Buyouts funds fared better than funds in other stages, posting a five year IRR of +13.4%. Investments in early stage funds suffered the most under the harsh conditions with an IRR of just +1.2% for the same period.
Nevertheless, the private equity performance has remained solid, when compared to some equity indices, where levels fell by over 30% last year, added the EVCA.
Between December 2001 and December 2002 the NASDAQ US plunged -32.5%; the Nouveau Marché (-53.3%); AIM (-32.8%); FTSE Eurotop 300 (-31%) and Eurostoxx 50 (-36.45%).
“As the private equity industry has grown globally, it becomes increasingly clear that its markets are becoming more efficient,” said Jesse Reyes, vice-president of Thomas Venture Economics.
“These results show that while the European private equity industry hasn't been completely immune to the public market cycle, it continues to provide solid long term returns to investors. It is this long-term performance, which is of most importance to institutional limited partner investors.”
The full report - 2003 Pan-European Investment Benchmarks Study - will be published later this spring.
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