Private Equity Still Outperforming Over Long-Term

Have you wondered if the current environment was going to signal the death or a serious blow to the end of private equity as we know it?  It seems that the reports of private equity’s death may be grossly exaggerated.  Does that means the private equity sector is immune from troubles?  Of course not.

State Street has reported its calculation for various 2007 private equity returns.  While the numbers are backward looking and do not indicate anything for tomorrow, the numbers are still staggering considering all of the problems that started hitting private equity firms last year.

The State Street Private Equity Index(sm) posted its returns for the index date December 31, 2007 based on the latest quarterly statistics from State Street Investment Analytics’ Private Edge(R) Group.  It is a detailed analysis of private equity investments for a diverse client base covering public and private pensions, endowments and foundations, representing more than 4,000 commitments totaling more than $160 billion.

State Street Private Equity Index(sm) Composition and long-term IRR as of December 31, 2007: 

• This measured "Buyout" funds with some 634 funds with $852.0 billion in commitments with a long-term internal rate of return showing a 15.9% return.  This was above the 614 Venture Capital funds measured, which had $206.4 billion in commitments and a 12.8% long-term internal rate of return.

This also notes that investors with access to the largest buyout managers have outperformed the best.  Keep in mind that this pertains to a "since inception" and long-term internal rate of return rather than just in 2007.  But this also dispels many of the notions that the current environment will signal the death of private equity buyout funds.

Jon C. Ogg
April 11, 2008