Private equity funds globally have maintained a high level of performance so far in 2019, despite falling from the record level seen in 2017, according to the latest Quarterly Private Equity Performance report from eFront.
Returns reached 1.437x in Q2 2019 – a net excess performance of 0.101x when compared to the ten-year average of 1.336x.
Investment risk fell between Q4 2018 and Q1 2019 – at 1.308x, the current level is close to the lowest points seen over the past 10 years.
For time-to-liquidity, the downward trend initiated in 2015 reached a bottom in 2018, and since then has stabilised at around 2.7 years.
For the US, active LBO funds are performing well when compared with the historical average, but the correction in valuations has moved more recent vintages down towards the average.
Active Western European funds divide into two groups, with vintage years 2010-12 on track for outperformance, while funds of 2013-16 have less certain performance.
Tarek Chouman, CEO of eFront, says: “Q1 2019 provided a welcome improvement of the multiples of active funds, after a challenging Q4 2018. Q2 2019 moderated this improvement. Whether this is a pause, or the start of a deeper trend remains to be seen. Overall, active LBO funds have maintained a high level of performance. Selection risk has decreased significantly, as well as time-to-liquidity, both hinting at a wave of new investments during that period. Recurring low interest rates and high levels of liquidity are also supportive of exits and dividend recapitalisations.
“Should this marginally lower performance and sharply reduced risk seen since Q1 2017 be described as a ‘new normal’? It is too early to say, but there is a visible downward trend in terms of selection risk. The increasing maturity of the asset class and relatively benign macro-economic conditions can explain this risk-reduction phenomenon.”
