Investors in private capital have earned up to 41% more than an equivalent public equity investment since 2001
Private equity and venture capital funds have collectively outperformed the public market every year since 2001, according to new analysis from the British Private Equity and Venture Capital Association (BVCA).
The BVCA’s new Performance and Public Market Equivalent (PME) Report uses two methodologies, the Kaplan Schoar1 KS-PME, a multiples-based methodology, and the PME+2, an IRR-based one, to establish the returns which would have been achieved by making equivalent investments in the public markets.
The KS-PME results show that BVCA members funds that started investing between 2001 and 2018 generated 34% more from investing in private capital of what investors would have earned from an equivalent public equity investment in the FTSE All Share Total Return Index and 41% more than an equivalent public equity investment in the MSCI Europe Gross Total Return Index.
The analysis using the PME+ method implies that, if investors had made an equivalent investment in the FTSE All-Share Total Return Index, they would have received a return of 6.8%, significantly lower than the 14.3% achieved by private capital.
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Michael Moore, Chief Executive of the BVCA, said:
“Private equity and venture capital continue to demonstrate that they are resilient asset classes that can provide consistently robust returns for investors and savers. Our latest findings provide clear evidence and reassurance that investment in private capital beats investment in public equity over the long term.”
The PME data provides further evidence that supports Chancellor Jeremy Hunt’s Mansion House reforms, announced in July this year, which encourage pension funds to diversify into alternative asset classes to boost pension savings and drive UK economic growth.
Furthermore, the report found that funds that started investing between 2001 and 2018 have already collectively distributed back to investors 1.28x of the original capital invested. It noted that, if these funds had liquidated their assets on 31 December 2022 at the given valuations, investors would have received back 1.81x their original investment. The pooled Internal Rates of Return (IRR) achieved by these funds by December 2022 was 14.3%.
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Karen Keany, BVCA: KKeany@bvca.co.uk
Notes to Editors
- The full PME report can be found here. The PME analysis uses the same underlying dataset as the BVCA’s Performance Management Survey (PMS), which should be read alongside the PME Report. The results provide a good indication of the long-term outperformance of private equity and venture capital compared to the public market. They also underline the need for a reliable relative measure of performance as well as an absolute measure and use two public market equivalent methodologies as presented in the report.
- The British Private Equity & Venture Capital Association (BVCA) is the representative body for private equity and venture capital, connects institutional investors, fund managers, companies, advisers and service providers together, with our membership currently comprising more than 700 businesses from across the private capital ecosystem. This includes more than 325 PE and VC firms, 100 institutional investors and 220 professional services firms.
1 The KS PME (Kaplan-Schoar) model discounts the private equity fund cash flows by the public market index value. The discounted distributions plus the current remaining value are divided by the discounted contributions to obtain the ratio.
2 The PME+ model uses a fixed scaling factor (lambda) to modify each distribution to ensure the PME final period remaining value is the same as the PE fund remaining value. IRR calculation uses modified distributions but same contributions and final period remaining value. The PME+ methodology was developed by Capital Dynamics.