New analysis of performance data finds private capital outperforms the markets
A new report from the BVCA in association with PwC finds that private capital consistently outperforms public markets.
The analysis carried out by BVCA, using the Capital Dynamics PME+ method found that private equity and venture capital achieved an internal rate of return (IRR) of 14.1% per annum, compared to 6.8% for the FTSE All Share or 7.7% for the MSCI Europe Index. This analysis compares private equity and venture capital funds established since 2001 with the FTSE All Share Index and MSCI Europe Index.Over a ten-year period, which is the typical minimum period over which private capital funds operate, private equity and venture capital funds
collectively comfortably outperform public markets delivering a return of 15% per annum, compared with 5.3% for the FTSE All Share Index and 7.5% for MSCI Europe. The latest one-year IRR, which is part of that 10 year period, is flat (0.3%), reflecting a year with relatively muted deal volumes, which contrasts with the 7.9% for the FTSE All Share Index and 13.8% for MSCI Europe as public markets rallied following softer years.
The PME+ methodology was developed by academics and industry practitioners to make it possible to compare the relative performance of private equity and venture capital to public indices. It achieves this by comparing the IRR for private capital vintages (in this case, the year in which the first drawdown of investment capital occurred) with the internal rate of return for public markets during the same period.
An advisory group of industry experts identified the FTSE All Share Index and the MSCI Europe Index as being the most appropriate indices for comparison, due to them having a similar range of investment sizes, sectors and geographies.
Michael Moore, BVCA Chief Executive said:
“This report proves that private capital’s record of investing for the long term delivers very strong returns when compared to public markets. We’re not immune to market conditions, but returns are strong when you look over a longer time horizon. Private capital is a long-term asset class, with investors committing funds for ten years or more, which will be invested in multiple companies. It’s a model that provides patient capital to businesses and allows time for investment and operational improvement.
“This research wouldn’t be possible without BVCA members providing their data, and the performance measurement survey board who share their expertise and ensure that processes are robust.
Media contacts
James Gribben, BVCA: [email protected]
Notes to editors
About the British Private Equity & Venture Capital Association:
The BVCA, as 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 600 businesses from across the private capital ecosystem. This includes more than 260 PE and VC firms, 100 institutional investors and 190 professional services firms.
Private capital drives growth – providing the funding, expertise and long-term view that enables companies to innovate and flourish. Our mission is to advocate the transformative nature of the private equity and venture capital community.
About PwC:
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 151 countries with over 364,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.
PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.
