Sample Pages The 2008 Preqin Private Equity Performance Monitor - Sample Pages © 2008 Private Equity Intelligence Ltd 1 Sample Pages A Guide to the Performance of Private Equity Fund Managers © 2008 Private Equity Intelligence Ltd 2 Sample Pages Contents 1. Executive Summary 7 Fund of Funds 41 - DPI, RVPI and TVPI 2. Methodology 13 - Median Net IRR and Quartile Ranking - Fund Selection Performance 3. Overall Performance of Private Equity 19 - Relationship between Successor and Predecessor Fund - Fund Universe Mezzanine 45 - DPI, RVPI and TVPI - DPI, RVPI and TVPI - Median IRRs, Money Weighted IRRs and Pooled IRRs - Median Net IRR and Quartile Ranking - Performance by Geographic Region - Quartile Ranking by Fund Number - Relationship between Predecessor and Successor Fund Quartile Real Estate 49 - Experience Effect - DPI, RVPI and TVPI - Median Net IRR and Quartile Ranking 4. Performance by Fund Type 29 - Relationship between Successor and Predecessor Fund Buyout 31 Secondaries 53 - DPI, RVPI and TVPI - DPI, RVPI and TVPI - Median Net IRR and Quartile Ranking - Median IRR - Median, Weighted and Pooled IRRs Venture 55 - North American vs. European Buyout Funds - DPI, RVPI and TVPI - Large and Mega Buyout Funds - Median Net IRR and Quartile Ranking - Buyout Cash Flow Analysis - Median, Weighted and Pooled IRRs - Buyout Net Cash Flow by Vintage Year - Performance of Early Stage Funds - Performance at Different Points in Time - Performance of Industry Focused Funds - Relationship between Successor and Predecessor Fund Quartile - Venture Cash Flow Analysis Distressed Debt & Special Situations 39 - Venture Cash Flow by Vintage - DPI, RVPI and TVPI - Performance at Different Points in Time - Median IRR - Relationship between Successor and Predecessor Fund Quartile © 2008 Private Equity Intelligence Ltd 3 Sample Pages 5. Risk and Investment Selection 63 11. Firm and Fund Listings 103 - Risk and Return by Fund Strategy - Detailed Listing for 1,000 Private Equity Firms including Background, - Risk and Return by Fund Size Fund Performance and Fund Quartile Ranking - Risk and Return by Vintage Year - Net IRR Dispersion from Benchmark 12. Market Benchmarks 491 - Investment Selection - Buyout: All - Buyout: US 6. Private Equity vs. Public Equity Indices 75 - Buyout: Europe - Early Stage 7. Private Equity Returns in a Portfolio Context 79 - Fund of Funds - Mezzanine - Real Estate 8. Private Equity: How Much Have Investors Gained Historically? 83 - Venture: All - Venture: US 9. Best Performing Funds 87 - Venture: Europe - All Fund Types - All Private Equity, Buyout, Venture - IRR Comparison - Buyout - Fund of Funds 13. Index 503 - Mezzanine - Firm Index - Real Estate - Figure Index - Venture - Other 14. Glossary 519 10. Consistent Performers 95 15. Other Publications 523 - Buyout Managers - Other Preqin Products - Venture Managers - Other Managers © 2008 Private Equity Intelligence Ltd 4 Sample Pages - Executive Summary Fig. A: Average Number of Months Spent on the Road by Closed Funds Executive Summary The private equity industry has grown dramatically in recent years as more and more investors are entering the asset class, and those already investing have continued to increase their allocations. Our latest fi gures indicate that in excess of $600 No. Months Spent on the Road million was raised over the course of 2008 making it another record year for the industry. However, these bumper fi gures do not indicate that private Fund Close Year equity fundraising has become an easier prospect; if anything the opposite is the case. and it can be challenging for managers to make their order to identify which areas have performed best and voices heard when there are so many other managers how much risk they involve. Both areas should be vital Fig. A showing the increase in average time taken to out there marketing alternative funds. considerations for all investors and advisors in the raise funds between 2004 and 2008 indicates that industry, and in such a competitive environment it is managers are fi nding it more challenging to raise When considering new fund investments, there are vital that fund managers are able to use performance funds than ever before. This is largely down to a two main ways in which historical performance data data to support their case effectively, and accurately rapidly increasing number of funds hitting the road can help the evaluation process. Firstly, by presenting benchmark themselves against their peers. over time making it harder for prospective LPs to the past performance of the fi rm in context, and make investment decisions. The level of competition secondly by helping investors and advisors to evaluate It is therefore essential that the private equity in the market has reached previously unseen levels, the performance of different areas of the industry in performance data presented is both meaningful and © 2008 Private Equity Intelligence Ltd 5 Sample Pages - Executive Summary Fig. B: All Private Equity - Relationship between Successor and Fig. C: All Private Equity - Quartile Ranking by Fund Number Predecessor Fund Quartile reliable. With details from over 4,000 funds, the Preqin Importance of Track History and Manager that past performance is no guarantee of future Performance Monitor is the most comprehensive Experience performance, and that even the top managers can guide to private equity performance ever produced. raise poorly performing funds. In terms of value, these funds represent around 65% As Fig. B shows, track history is an important factor to of private equity funds raised historically, ensuring consider when investing in private equity. Managers The effect of manager experience is much less that the benchmarks, quartiles and analysis that of top quartile funds in 42% of cases see their next pronounced, and as Fig. C shows, there is little the Monitor contains are accurate, meaningful and fund appear in the top quartile, with only 10% of difference between the distribution of fi rst, second, representative. Through collecting performance follow-on funds appearing in the bottom quartile. A third and fourth time funds amongst the overall information not only from GPs but from LPs too, we similar phenomenon is witnessed at the other end of quartiles for private equity, although there is evidence are able to ensure that the data does not suffer from the scale, where managers of bottom quartile funds that more experienced managers perform slightly ‘survivorship bias’, and that the performance of poorly in 37% of cases go on to manage another bottom better than their newly incepted counterparts. This performing funds is accounted for as well as that of quartile fund, with only 19% managing to climb to suggests that investors in the asset class should not the better performing funds. the top quartile. Track history is clearly an important place too much importance on the number of funds consideration, but the data also demonstrates that a fi rm has managed, and that actual track history © 2008 Private Equity Intelligence Ltd 6 Sample Pages - Executive Summary is a much more important factor. Experience alone Fig. D: Buyout Median IRR does not necessarily equate to better performance, and fi rst-time fund managers unable to demonstrate past performance have a good chance of appearing in the upper quartiles. Other important factors to consider Although fi rst-time managers (spun-out fi rms excepted) are unable to utilise past performance Net IRR (%) Since Inception when attracting investors, there are many other ways in which they can utilise performance data to both market their funds, and also to ensure that Vintage Year they have reliable fi gures to benchmark themselves against. Investors and managers alike have a large also effectively allows users to evaluate the risk of effectively deploy capital and continue to generate number of metrics available to them both during different fund types. strong returns to investors. Fig. D showing the median the marketing process, and also when working to performance of the buyout industry demonstrates that maintain a high level of market knowledge. In the What does the future hold for private equity funds incepted during periods of economic downturn body of the Preqin Performance Monitor there are performance? can actually perform very well, with 2001 vintage numerous benchmarks for funds of different types funds posting median returns of 25.3%. If anything, and regions across different vintage years which With the days of cheap credit and highly leveraged it is the deals made during potentially overheated can help to show how private equity has performed deals behind us, many commentators have expressed market conditions in 2007 that might prove to be less historically and therefore how it may perform in the surprise at the continued ability of the industry to successful than originally anticipated. future. Through evaluating standard deviation around raise capital. Deal-fl ow has slowed, and questions mean performance, analysis contained in the Monitor have been asked over whether fi rms will be able to © 2008 Private Equity Intelligence Ltd 7 Sample Pages - Executive Summary $1.12 trillion in returns and counting… Fig. E: Net LP Gain (Distributed plus Unrealised) The main factor driving the continuing growth of the private equity industry has been the strength of the asset class in providing strong returns to investors. Fig. E shows the net gain to LPs from their private equity investments by vintage year. In total the industry has created a net gain of $1.12 trillion for investors, and this is with funds of recent high-fundraising vintages Gain ($bn) Net LP still maturing. If these funds were able to create net value multiples averaging just 1.5X, we could see this fi gure rising to nearly $2 trillion with ease. Vintage Year The evidence shows that private equity has done an exceptional job in creating strong returns for investors. for investors, fund managers, fund marketers, and It is therefore small wonder that investors continue advisors alike. to show confi dence in the asset class, and that the industry continues to grow.