A new report from the BVCA applies two Public Market Equivalent (PME) methodologies to present a comparison of the relative performance of private capital funds managed by BVCA members against the UK public equity market, as represented by the FTSE All-Share Total Return index.
The findings are striking. The BVCA analysis shows that the private equity and venture capital funds in the dataset have collectively outperformed the public market as represented by the FTSE All-Share Total Return Index every year since 1991. The sole exception to this is 2006 when private equity and venture capital outperformed on one PME measure and was equal on the other.
A Public Market Equivalent (PME) analysis benchmarks the performance of investments into private equity and venture capital funds against the performance the public market would have generated over the same period using the same investment timings. This is the first time this methodology has been used on a dataset in the United Kingdom as broad and as deep as the BVCA’s membership, with the underlying data being taken from the BVCA’s Performance Measurement Survey 2020 which contains data on 873 funds going back to 1980.
Using data gathered from across the breadth of its membership for the 2020 Performance Measurement Survey, the BVCA’s Performance and Public Market Equivalent report shows that, not only are absolute returns strong, with investors collectively receiving a return of 15.1% per annum since 1991, but that relative returns are also good, with funds managed by BVCA members earning greater returns for investors than equivalent investments in the FTSE All-Share Index over the same time period.
The two measures used are the Capital Dynamics PME+ and the KS-PME:
A key input into a Public Market Equivalent analysis is the benchmark index selected. The most appropriate benchmark index, given the size, geography and sector focus of the funds in the BVCA’s dataset, is the FTSE All-Share Total Return index. The report covers the period from 1986, as this is the first year for which the index data is available.
The methodologies contained within the BVCA’s PME report have all been reviewed and thoroughly tested by industry experts at Capital Dynamics and leading academic within the field of private equity research David Robinson, Professor of Finance at Duke University.
READ THE REPORT
“We are delighted to present this thorough and transparent Public Market Equivalent analysis to help investors better understand the relative performance of private equity and venture capital compared to public markets.
“This research clearly shows the strong returns generated by private equity and venture capital, and why this attractive asset class should be considered as part of a portfolio for long term investors such as pension schemes. Developed with expert input from the industry and leading academics, this report is part of our mission to engage with, and learn from, all stakeholders in our industry and beyond.”
“Our Performance and Public Market Equivalent report – focusing solely on funds managed from the UK – is an important contribution to the debate around private equity and venture capital and the returns generated for investors, both in absolute and relative terms.
“It is very important that we listen and learn from the greatest minds in academia and industry practice, as well as keeping pace with expected methodologies to ensure private equity and venture capital returns can be scrutinised accordingly.”
1 See ‘Notes to Editors’ number 3 above
2 See ‘Notes to Editors’ number 4 above
FOR FURTHER INFORMATION PLEASE CONTACT THE BVCA
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