Private equity and venture capital funds have collectively outperformed the public market every year since 2001, with investors earning up to 41% more as a result, according to new analysis from the British Private Equity and Venture Capital Association (BVCA).
The BVCA’s new Performance and Public Market Equivalent (PME) Report uses two methodologies, the Kaplan Schoar KS-PME, a multiples-based methodology, and the PME+, an IRR-based approach, to establish the returns which would have been achieved by making equivalent investments in the public markets.
The KS-PME results show that BVCA members funds that started investing between 2001 and 2018 generated 34% more from investing in private capital of what investors would have earned from an equivalent public equity investment in the FTSE All Share Total Return Index and 41% more than an equivalent public equity investment in the MSCI Europe Gross Total Return Index.
The analysis using the PME+ method implies that, if investors had made an equivalent investment in the FTSE All-Share Total Return Index, they would have received a return of 6.8%, significantly lower than the 14.3% achieved by private capital.
The report also found that funds that started investing between 2001 and 2018 have already collectively distributed back to investors 1.28x of the original capital invested. It noted that, if these funds had liquidated their assets on 31 December 2022 at the given valuations, investors would have received back 1.81x their original investment. The pooled Internal Rates of Return (IRR) achieved by these funds by December 2022 was 14.3%.
