Western Europe leads the world in private equity returns
Data from eFront, covering 4,000 funds globally, shows that Western European private equity funds showed the best returns globally, at the same time as delivering robust performance on the VC side.
Western European private equity funds achieved an overall return of 1.68x (TVPI - total value to paid in), ahead of the US on 1.56x. On an IRR (internal rate of return) basis, the figures were 14.32 per cent for Western Europe and 12.17 per cent for the US.
The performance was led by Nordic funds on 1.91x, Benelux funds on 1.85x, and the UK on 1.62x.
On the VC side, Western Europe delivered 1.34x, led by the UK on 1.37x and Italy on 1.35x, while on a combined basis, Western Europe was the second best performing region for PE and VC globally, recording 1.65x – just behind China on 1.67x.
Other regions, including Russia/CEE, Southern Europe and Latin America, saw markedly lower returns.
eFront’s Global Private Equity Performance Series research, which analyses to all-time returns achieved by around 4,000 funds globally from 1991 to present, supports the thesis that those countries and regions that have experienced higher productivity growth offer the best private equity returns. This explains the divergence in performance between the UK, Nordic and Benelux countries on one side and Southern European countries on the other.
Another source of difference in performance between the UK, Nordic and Benelux countries with respect to Southern Europe, and France to a lesser extent, is the asymmetric exposure to the sovereign debt crisis during the period 2013 to 2015, when the exit market was at a an historic peak in terms of activity. This resulted in lower company valuations, and therefore returns, in countries with more severe public debt issues.
Tarek Chouman (pictured), CEO of eFront, says: “When analysing private equity and venture capital, forming a sophisticated understanding of the characteristics of specific geographic markets is of crucial importance. Our Global Private Equity Performance Series represents, to the best of our knowledge, the most comprehensive publicly available analysis of returns, risk and liquidity among private equity’s main geographies. Private markets do not offer precise or timely information, and the nature of closed-ended funds introduces other complexities. These challenges are opportunities for those willing to invest the time in truly understanding the idiosyncrasies and stages of evolution in different geographic markets.”