PM 2012 Sample Pages.Indd

Executive Summary - Sample Pages The 2012 Preqin Private Equity Performance Monitor Fig. 1.1: PrEQIn Index: All Strategies 1. Executive Summary 300 250 PrEQIn All Private Equity 200 Despite challenging conditions in wider In the latter part of 2011, however, the ability PrEQIn Buyout fi nancial markets, private equity has of private equity funds to deliver attractive 150 weathered the crisis well. The onset of the returns was tested yet again, with wider Index Returns 100 PrEQIn fi nancial downturn and the introduction of fi nancial markets experiencing volatility Venture Capital mark-to-market valuations in 2008 saw brought on in part by an escalation of the 50 steep losses in the short term; however, sovereign debt crisis in Europe. This has (rebased to 100 as of 31-Dec-2000) since that time the asset class as a whole led to two important questions – how have 0 has been in a state of recovery. private equity funds fared, and can such investments provide returns to investors in The PrEQIn Index, shown in Fig. 1.1, times of economic uncertainty? 31-Dec-00 31-Dec-01 31-Dec-02 31-Dec-03 31-Dec-04 31-Dec-05 31-Dec-06 31-Dec-07 31-Dec-08 31-Dec-09 31-Dec-10 31-Dec-11 tracks the quarterly movements in the performance of the private equity industry Private Equity Performance: The Emerging since December 2000, illustrating the Picture Fig. 1.2: All Private Equity - J-Curve: Annual Median Net IRRs by Vintage Year downturn as well as the subsequent rebound of private equity fund returns. The immediate impact of the fi nancial crisis 0.15 can be seen in the “J-curves” of funds of The index shows that private equity returns vintages 2005-2009, shown in Fig. 1.2. 0.1 bottomed out in Q1 2009, but following this Traditionally these curves are shaped the industry showed quarter-on-quarter as a “J”, demonstrating how net IRR 0.05 Vintage 2005 increases for the rest of that year and into declines then subsequently improves as 0 Vintage 2006 2010. Moving into 2011 the year began well a fund advances through its life-cycle and 01234567 for private equity, with deal fl ow picking up value is added to investments. For these -0.05 Vintage 2007 signifi cantly in H1. Additionally, the fi rst half vintage years, however, the trajectories Vintage 2008 of the year saw private equity-backed exits were effectively reversed and the IRR -0.1 reach an all-time high, which translated into paths took on more of a “W” shape due Vintage 2009 -0.15 record distributions across the industry. In to the widespread portfolio devaluations Median Net IRRs Since Inception total, an estimated $392bn was returned to experienced at the end of 2008. investors over the course of the year. -0.2 Since Q2 2009 the recovery of the industry -0.25 is apparent, with the median net Investment Year © 2012 Preqin Ltd 1 Executive Summary - Sample Pages IRRs of private equity funds of all vintage In addition, performance also varies Fig. 1.3: Private Equity Horizon IRRs as of 31 Dec 2011 years showing consistent improvement. signifi cantly across different geographies. Signifi cantly, preliminary data reveals that Fig. 1.4 looks at the returns earned by 20% vintage 2009 funds showed higher returns investors across the three main regions: 18% and also moved back into the black a full North America, Europe and Asia. While 16% year earlier than most of the other vintage China and other Asian countries began to All Private Equity years. At the height of the global fi nancial experience a slowdown in their economies 14% Buyout crisis there was an element of optimism in H2 2011, private equity returns across 12% in the private equity industry, with the the region over the one-year period to 10% Venture Capital knowledge that investments made during December 2011 stood at -1.8%. The return a recession often go on to generate strong for funds with a primary focus on investment 8% Fund of Funds Annualized Returns returns for investors. It is early days for in Europe stood at 7.4% over the same 6% Mezzanine vintage 2009 funds, as these vehicles are period, while North America-focused funds 4% at the beginning of their fund lives and still generated a return of 10.9%. The returns have many years to go before they liquidate. are higher over the three-year period across 2% However, our preliminary data suggests that all three regions and lower over the fi ve- 0% 1 year to Dec 2011 3 years to Dec 5 years to Dec 10 years to Dec investors can be cautiously optimistic about year time frame. 2011 2011 2011 the returns made for this vintage year. Identifying Top Performing Funds How Has Private Equity Performed over the Fig. 1.4: Regional Horizon IRRs as of 31 Dec 2011 Long Term? While private equity investment can offer long-term rewards to investors, there is a 18% Private equity is a long horizon investment signifi cant spread between the performance 16% type, with investors locked into funds for 10 of individual funds, with a particularly large years or longer. Consequently, while it can gulf between the returns generated by the 14% be interesting to look at short- and medium- best and worst performing funds. 12% North term performance, it is most important to America 10% assess the returns of funds over a longer Despite the fact that past performance is not period of time. a guarantee of future success, there is clear 8% Europe evidence to suggest that managers of top- 6% Horizon IRR Asia Across all private equity fund types for the tier funds are more likely than their peers 4% 10 years through 31st December 2011, the to continue to produce top performing funds annualized returns stand at 11.9%. The in the future. While 15% of managers of 2% returns generated by the different private bottom quartile funds subsequently improve 0% 1 year to Dec 2011 3 years to Dec 2011 5 years to Dec 2011 equity strategies vary signifi cantly, with and manage top quartile successor funds, -2% buyout funds reporting an annualized IRR many more do not. Therefore, it is important -4% of 19.0%, mezzanine 10.8%, fund of funds to recognize that despite the importance of 5.0% and venture capital 0.3%. a fund manager’s track record, each new © 2012 Preqin Ltd 2 Executive Summary - Sample Pages opportunity should be judged on its own ranking, with the exception of more recent Fig. 1.5: All Private Equity - Relationship between Predecessor and Successor Fund Quartiles individual merits. vintages that do not yet show meaningful performance. These rankings are based 100% Fig. 1.5 shows that 36% of fund managers upon the peer group of each vehicle, taking 14% 90% 18% 20% with a top quartile fund go on to manage into account vintage, strategy and region 36% 80% Bottom Quartile a top quartile successor fund, and 66% focus. Both the multiple and IRR are used 20% Successor Fund outperform the median benchmark. as key indicators and equal emphasis is 70% 27% 31% Conversely, the graph also shows that 36% placed on both metrics. 60% Third Quartile of bottom quartile managers remain in that Successor Fund 50% 30% 29% quartile with their next offering, while 65% Fig. 1.6 lists the top fi ve consistent Second Quartile underperform the benchmark. performing buyout fund managers. A fund 40% 29% Successor Fund 29% Proportion of Funds manager’s average score is determined 30% Top Quartile As institutional investors look to construct by awarding each top quartile fund a score 20% Successor Fund 20% 36% their private equity portfolios and commit of one, each second quartile fund a score 26% 10% 20% to funds that meet their requirements, of two, and so on. The list shows that the 15% the ability to identify, select and evaluate top three managers - Altor, Lovell Minnick 0% Top Quartile Second Quartile Third Quartile Bottom Quartile these top performing funds is of paramount Partners and Southern Cross Group - Predecessor Fund Predecessor Fund Predecessor Fund Predecessor Fund concern. By providing access to transparent have all of their funds ranked in the top and accurate fund-by-fund returns data for quartile and therefore have achieved the over 6,000 vehicles, the 2012 Preqin Private best possible score of 1.00. Israeli-based Fig. 1.6: Top Five Consistent Performing Buyout Fund Managers Equity Performance Monitor can assist in FIMI and Netherlands-based Waterland this challenging task. follow next, each with a score of 1.25. For Overall Number Number of Number of Average extended lists of consistent performers, Firm Location of Funds with Funds in Top Funds in Second Quartile Consistent Performers broken out by fund strategy and vintage Quartile Ranking Quartile Quartile Rank year, please see the Consistent Performers Altor Sweden 3 3 0 1.00 The ability to fi nd consistent performing chapter that follows. Lovell Minnick US 3 3 0 1.00 managers is no easy task, particularly in an Partners industry known for its lack of transparency. The 2012 Preqin Private Equity Performance Southern Argentina 3 3 0 1.00 Despite improvements made in the level of Monitor Cross Group disclosure across the private equity space, FIMI Israel 4 3 1 1.25 it remains a challenge for LPs and GPs Now in its ninth edition, the new Performance Waterland Netherlands 4 3 1 1.25 to access the reliable, accurate and fully Monitor contains key metrics for more than transparent data necessary to effectively 6,000 private equity funds, which in terms of benchmark funds.

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