UK private equity “comfortably outperforming” pension funds and FTSE All-Share

The survey found that the combined ten year internal rate of return (IRR) for private equity and venture capital stood at 14.9 per cent for 2014 – nearly double the figure returned by UK pension fund assets and the FTSE All-Share, at 7.8 per cent and 7.6 per cent respectively.

It also marked the highest performance for venture funds since the financial crisis, and the first time that since-inception returns for pre-2002 funds have been positive since the BVCA began measuring their performance.

The report, which demonstrated the performance of independent UK private equity funds, was conducted in conjunction with PwC and Capital Dynamics.

John Dwyer, PwC deals leader, said: “Private equity has had its downs as well as ups over the last ten years, and returns from different years tell their different stories.”

Reviewing the decade as a whole, Dwyer indicated that “PE has shown real resilience in comfortably outperforming pension assets and the listed sector”. He added that “more recent, post-crisis vintages have performed well and successful exits over the last few years have shown how the industry can respond to a downturn, which is encouraging for investors”.

The since-inception return metric “most accurately reflects the performance of private equity” as it measures from the actual beginning of a fund as opposed to solely recent years. The BVCA added that it was important to consider the long-term returns when attempting to compare private equity with other asset classes, rather than just looking at shorter-term measures.

Read more on venture capital:

• The European VC investment trends that took place in Q1 2015
• A look at the most active UK equity investors in the seed, venture and growth space during 2014
• North East holds its own in number of private equity and venture capital-backed businesses

The report mentioned that UK GDP had finally returned to its pre-recession peak, which had helped restore confidence among business and investment communities. This improved stability extended to the private equity industry which consistently outperformed its competitors and delivered high returns to investors.

The overall since-inception rate had dropped from 2013 when it was 14.1 per cent, to 13.8 per cent in 2014, but the BVCA said it had remained strong with “remarkable levels of stability in overall returns”.

The majority of BVCA member firms which managed companies eligible for the report responded to the survey – with 557 UK managed funds featuring in the dataset for 2014. The BVCA said it believed this made it the most complete country specific survey on the performance of private equity and VC funds in the world.

As well as generating returns of 14.9 per cent – nearly double that of UK Pension Fund Assets and the FTSE All-Share – private equity had also outperformed over the short and medium-term, with three and five year annual returns of 12.9 per cent and 11. 5 per cent. For the same time period, UK Pension Fund Assets and the FTSE All-Share returned 10.3 per cent and 9.4 per cent, then 11.1 per cent and 8.7 per cent to investors. 

VC funds had an “exceptionally successful” year, with pre-2002 vintages obtaining an annual IRR of 34.2 per cent in 2014, with the class as a whole attaining an annual IRR of 14.6 per cent.

Image: Shutterstock

By Rebecca Smith

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