Industry Performance

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Introduction

The BVCA – The British Private Equity and Venture Capital Association – in conjunction with PwC and Capital Dynamics is pleased to announce the summary analysis of the 2016 Performance Measurement Survey. The Survey demonstrates the performance of ‘independent’ UK private equity funds, i.e., funds raised from external investors for venture capital and private equity investment, but excludes listed private equity investment companies (LPE). These were formerly known in the Survey as quoted private equity investment trusts (PEITs)* and venture capital trusts (VCTs).

The vast majority of BVCA member firms which manage funds eligible for this report responded to the survey. There are 611 UK managed funds included in this year’s dataset and we believe this makes it the most complete country specific survey on the performance of private equity and venture capital funds in the world.

Private equity is a long-term investment and asset class. As such, the since-inception return metric most accurately reflects the performance of private equity since it measures from the actual start of a fund, rather than just recent years. When comparing private equity with other asset classes, emphasis should be placed on the longer-term returns rather than the shorter-term measures.

The results are provided net of fees and costs, including a provision for performance fees (‘carried interest’) where appropriate.

Key points

Despite the turmoil of political events both domestically and internationally in 2016, the UK’s private equity and venture capital industry has continued to demonstrate its resilience in the face of potential instability, by continuing to deliver substantial amounts of cash distributions to investors. Over the longer term, private equity continues to comfortably outperform public markets; private equity has generated returns to investors of 11% over the past decade. While this represents a drop from last year, it is nearly double that of the FTSE All-Share, which generated returns of 5.6%.

Although a long-term asset class, private equity has also outperformed over the short- and medium-term, producing three- and five-year annual returns of 12.7% and 13.7%, respectively, compared to the FTSE All-Share, which returned 6.1% and 10.1% to investors over the same respective time periods.

The most appropriate measure of the long-term performance of private equity is on a since-inception basis, and under this metric, UK private equity continues to demonstrate a high-level of persistence and consistency in performance, with returns tending to hover in a band of approximately 15% over the past decade. This year’s since-inception return of 14.1%, an increase on last year’s corresponding value, remains broadly in line with this overall trend.

Buyouts have continued their relatively strong performance, albeit with lower returns than in 2015. Small buyouts have remained the strongest performers, with a since-inception IRR of 15.7%. Large buyouts have also seen a marginal increase on a since-inception basis, with their IRR increasing to 14.9%.

Venture capital funds on the whole have continued to improve over the short- and long-term, with three-year returns of 12.5% helping to push the five and ten year IRRs for venture up from 9.2% to 11.1% and from 5.1% to 6.2%, respectively.