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Private equity assets hit USD3trn

Total assets under management held by private equity funds worldwide have reached USD3 trillion for the first time, highlighting the sustained growth of the industry despite challenging wider economic conditions, according to research conducted by Preqin for the 2012 Private Equity Performance Monitor.

The figure is calculated using unrealised portfolio value and the dry powder (uncalled capital) available to private equity funds across the whole scope of the asset class.

Industry assets under management increased by nine per cent from December 2010 to December 2011.

Buyout funds account for approximately 40 per cent of the industry’s assets – USD804bn in unrealised portfolio value plus USD392bn in dry powder.

The strongest period of growth of private equity industry AUM occurred in 2004 – 2007, when assets expanded by 136 per cent, driven by the emergence of mega buyout funds.

The Preqin Private Equity Quarterly Index (rebased to 100 as of 31 December 2007) stands at 94.9 as of 31st December 2011, outperforming the S&P 500 at 77.1.

Private equity annualised horizon returns over 10 years to December 2011 stand at 11.9 per cent, above that of the S&P 500 and MSCI Europe indices, but below the MSCI Emerging Markets index, which is showing a 13.9 per cent return across the period.

Distressed private equity funds have consistently outperformed the All Private Equity Index and are the top performers in the industry according to the most up-to-date data. The Preqin Distressed Private Equity Index (rebased to 100 as of 31 December 2001) stands at 325.8 as of 31st December 2011.

The latest figures show the gap between top and bottom quartile private equity funds’ performance has increased over recent quarters. The Preqin Top Quartile Index (rebased to 100 as of 31 December 2001) stands at 484.0 as of 31 December 2011, while the Bottom Quartile Index reports 46.3.

Thirty six per cent of fund managers with a top quartile fund go on to manage a top quartile successor fund, and 62 per cent overall outperform the median benchmark with their next fund.

Thirty six per cent of bottom quartile managers remain in that quartile with their next offering, while 56 per cent underperform the median benchmark.

“The sustained growth of industry assets highlights the fact that private equity continues to be attractive to institutional investors that are willing to forgo liquidity in return for outperformance,” says Bronwyn WIlliams, manager, performance data, Preqin. “Despite the uncertainty and volatility that has prevailed in recent years, faith remains that private equity fund managers can still deliver these returns. When examining the 10-year performance of the asset class it is clear that private equity can generate superior returns; however, our analysis also highlights the wide gulf between the performance of top and bottom quartile funds. Consequently the key issue for investors remains identifying, researching and selecting the best potential fund managers for their portfolios.”

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