The long-term internal rates of return for US private equity funds declined marginally in the third quarter of last year, according to the State Street Private Equity Index, and although n
The long-term internal rates of return for US private equity funds declined marginally in the third quarter of last year, according to the State Street Private Equity Index, and although non-US funds saw their IRR improve, it was only because of the decline of the US dollar against other major currencies.
The index is based on the latest quarterly statistics from State Street Investment Analytics’ Private Edge Group, which provides detailed analyses of customers’ private equity portfolios through an automated web-enabled environment.
The index, which comprises 1,381 funds with aggregate commitments of USD1.1trn, recorded a decline in long-term IRR from 15.29 per cent at the end of June to 15.03 per cent three months later. The 619 buyout funds in the index with commitments of USD813bn saw IRR fall marginally, from 15.79 to 15.70 per cent.
The average IRR of the 162 venture capital funds with commitments of USD204bn in the index declined from 13.23 to 12.42 per cent, while 600 other private equity funds with commitments of USD136bn experienced a decline from 14.55 to 14.13 per cent. However, the 232 non-US funds with commitments of USD252 tracked by the index enjoyed a rise in average IRR from 20.80 in June to 21.68 per cent at the end of September.
‘The tightening of credit conditions, especially in the US, has constrained deal flow during the quarter, as evidenced by cancellation or postponement of several buyout transactions and increased challenges in placing leveraged buyout debt for completed transactions,’ says State Street senior vice-president William Pryor.
‘This decrease in buyout transactions has manifested itself in slightly lower overall valuations and thereby lower long-term returns on a quarter-over-quarter basis across the US private equity space. However, international private equity displayed slightly improved returns over the prior quarter due to the continued weakness of the US dollar.’
State Street says the index allows private equity investors to evaluate their performance against their peers across a broad and representative sample of investments. Unlike other indices, the State Street Private Equity Index does not rely on voluntary reporting of cash flows from general partners to calculate returns, avoiding reporting bias.
The index includes data derived from the diverse client base of the Private Edge Group covering public and private pensions, endowments and foundations, representing more than 4,000 commitments totalling more than USD150bn.
State Street Investment Analytics services are provided from offices in Alameda, Amsterdam, Boston, Dublin, Edinburgh, Frankfurt, Hong Kong, London, Luxembourg, New York, Paris, Sydney, Toronto and Zurich. The group calculates performance for more than 1,200 clients globally on asset volumes exceeding USD5.5trn.
