New analysis of PE and VC reveals strong performance over the past decade
A new metric looking at the performance of private equity and venture capital funds has revealed a strong industry internal rate of return (IRR) of 19.6 per cent and Total Value to Paid In multiple (TVPI) of 1.9x for funds that started investing over the last decade.
This compares to an industry return since 1980 – the first year for which the British Private Equity and Venture Capital Association (BVCA) has data available – of 14.6 per cent per annum and a total value to paid in multiple of 1.8x.
The new metric, capturing only investments made over the past decade, is important because it reflects the current size of the industry, the rough length of a private equity or venture capital fund (so funds which are still active) and strips out the influence of historic data from performance figures.
The ‘since inception’ return illustrates the return to investors achieved from the beginning of a fund to the current period, based on cash flows and valuations, and is therefore the best time period over which to consider private equity and venture capital performance. Both annual returns (IRRs) and multiples of invested capital are important measures when assessing performance.
For example, using this new metric and taking 2011 as the starting point, if funds in this pool had liquidated all their assets on 31 December 2020 at the reported valuation, investors would get back nearly 1.9x their original investment, earning a per annum return of 19.6 per cent.
In contrast the ‘since inception’ annual rate of return using 1980 as the starting point to 2020 is 14.6 per cent per annum, meaning the private equity and venture capital industry has performed better over the last ten years than overall since 1980.
These new figures, and the methodology behind them, were made available today by the British Private Equity and Venture Capital Association (BVCA), the trade body that represents private equity and venture capital. Produced in association with PwC, its new Performance Measurement Survey, demonstrates how the industry has generated impressive returns for its investors and provides a wealth of detail on different types of returns over different time periods.
Michael Moore (pictured), BVCA Director General, says: “Private equity and venture capital funds continue to generate compelling returns on behalf of investors, such as pension savers and insurance companies, with performance in recent years going from strength to strength.
“As a recent report from the Bank of England, Treasury and FCA-led Productive Finance Working Group recently, says: there is a strong case for greater investment in less liquid assets – including the superior returns for private equity and venture capital which our report clearly shows. This makes private equity and venture capital funds an exciting and attractive investment opportunity for pension schemes and other investors looking to add diversification to their portfolios.”
Richard McGuire, PwC Private Equity Funds Leader, says: “We are pleased to support the BVCA in the production of their annual Performance Measurement Survey, which has once again shown the strong performance of private equity and venture capital performance through a challenging year. The private capital industry continues to attract record levels of capital as investors are attracted by strong returns as shown in this survey.”
Suzi Gillespie, Head of Research at the BVCA, says: “A natural question to ask, given the long-term nature of the data set held by the BVCA, is whether the industry’s strong returns in the 1980s and 1990s - when there were significantly fewer private equity and venture capital firms - would favourably skew the overall rate of return. This new analysis looking at since inception returns starting from different years indicates that performance remains strong when those years were not factored in.”