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 publish the summary analysis of the 2018 Performance Measurement Survey. The Survey covers the performance of ‘independent’ UK venture capital and private equity funds, i.e., funds raised from external investors for venture capital and private equity investment. This survey does not include listed venture capital and private equity investment companies.

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

There are 726 UK managed funds included in this year’s dataset that are managed by BVCA members. The results are provided net of fees and costs, including a provision for performance fees (carried interest) where appropriate.

Key points

Despite the challenges that remain in the UK economy, such as low productivity and continued political uncertainty, the UK’s private equity and venture capital industry has continued to demonstrate its resilience by returning substantial amounts of cash distributions to investors. Over the longer term, venture capital and private equity continues to comfortably outperform public markets.

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 26.4% and 18.5%, respectively, compared to the FTSE All-Share, which returned 6.1% and 4.1% to investors over the same respective time periods.

The most appropriate measure of the long-term performance of venture capital and private equity is on a since-inception basis, and under this metric, UK venture capital and private equity continues to demonstrate a high level of persistence and consistency in performance, with returns tending to hover in a band of 14-15% over the past decade. This year’s since-inception return of 14.6%, a marginal increase on last year’s corresponding value, remains in line with this overall level.

Buyouts have continued their relatively strong performance. Large buyouts are the strongest performers, with a since-inception IRR of 16.0%.

Venture capital post 2002 vintage funds have significantly improved over the short- and long-term, with the one-, three and ten year IRRs up from -5.1% to 12.3%, from 8.0% to 10.8%, and from 8.8% to 10.3% respectively.