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Table Of Contents
Private Equity & Venture Capital Overview .......................... 3-4
Average IRR by Vintage ................................................. 3
Private Equity & Venture Capital Horizon IRR ............... 4
Average 1-Year Returns by Fund Type ........................... 4
Private Equity ........................................................................ 5-8
Private Equity Horizon IRR ............................................. 5
1-Year Change in Total PE Portfolio Value ..................... 5
PE Fund Return Multiples by Vintage Year .................... 6
PE Fund Performance Quartiles by Fund Size ................ 6
Private Equity Fundraising ............................................. 7
Private Equity Fundraising Overhang ............................ 7
Selected Closed & Open PE Funds ................................. 8
Venture Capital ..................................................................... 9-12
Venture Capital Horizon IRR .......................................... 9
1-Year Change in Total VC Portfolio Value ..................... 9
VC Fund Return Multiples by Vintage Year .................... 10
VC Fund Performance Quartiles by Fund Size ................ 10
Venture Capital Fundraising Overhang .......................... 11
Selected Closed & Open VC Funds ................................. 12
Fund of Funds ........................................................................ 13
Global Private Equity & Venture Capital ................................ 14
About PitchBook..................................................................... 15
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Overview
Despite a 24-month period that included the near collapse of the financial system, a complete freezing of debt markets and a
global recession second to only the Great Depression, the private equity and venture capital industries continue to
demonstrate their biggest strength of creating long term value in portfolio companies. The results of this value creation can be
clearly seen in the impressive returns generated by PE and VC investors across fund vintages, sizes, geographies and investment
strategies, as well as the continued commitment of capital from limited partners. Both PE and VC investors, however, continue
to face a number of near- and medium-term challenges, such as the need for investment liquidity opportunities and an
economy not far from its nadir. Other challenges are more structural, such as years of lackluster average returns for VC and a
significant capital overhang for PE.
This report contains detailed information on U.S. and global PE and VC fund IRRs, returns multiples, fund quartiles, fundraising
and capital overhang to provide a complete picture of each industry’s performance over the last decade. A number of
observations are apparent from the data, including the outperformance of public markets by PE, the even stronger
performance from global funds, the critical importance of fund selection and the effects of the overall economy on private
equity and venture capital returns.
Vintage Year
Source: PitchBook
Private equity funds have had five straight vintages with IRRs averaging over 10%.
Mezzanine funds are the second best performers with returns not too far below PE funds
for most vintages followed by fund of funds which track close to the average IRR of all
fund types.
The average venture fund IRR has been negative for every vintage since 1999, bottoming
out with the 1999 vintage at -11.6% and peaking with the 2003 vintage at -3.4%.
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Sources: PitchBook
Russell Investments
The 1-, 3- and 5-year Horizon IRRs as of 3/31/2010 for private equity and venture capital are displayed in this chart along with
the 1-, 3- and 5-year annualized returns for public equities markets. The chart shows that over the last year the recent rise in
public markets has caused PE and VC funds to underperform the public markets. However, PE and VC funds are long-term
investors. Thus, a better measure of the industry’s performance is their 3- and 5-year returns, which show both PE and VC
outperforming the public market benchmarks. Private equity in particular outperforms with a 3-year IRR of 1.5% and a 5-year
IRR of 14% versus -6% and 0% returns for public markets over the same time periods.
Source: PitchBook
The charting of 1-year returns over the last decade provides an interesting look at the performance of the industry in different
economic climates and across all parts of the business cycle. The impact of the recent financial crisis is clear with all funds,
except mezzanine, turning in a 1-year IRR for 2008/2009 of -18%. The middle of the decade, when the U.S. economy was
strong and expanding, provided an ideal environment for investors with five straight years of returns between 5% and 15.5%
for most fund types.
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Private Equity
The early and mid-2000s were favorable years for private equity investing as displayed by its industry-leading average IRRs year
after year, impressive average return multiples and top quartile returns in excess of 17%. The past two years have been difficult
for PE though, with most portfolios taking significant writedowns as shown by below-par TVPI for most non-mature funds. But
with a 30.8% rise in PE portfolio values and a 14% 1-year IRR for the year ending 1Q 2010, performance is rebounding, signaling
that conditions are beginning to return to some state of normalcy. The data also shows that a nuber of key challenges remain
for PE, including finding liquidity opportunities, growing portfolio companies and putting to work the $485 billion of dry
powder amassed from fundraising over the last the last eight years.
J-Curve
Source: PitchBook
75th Percentile
Median
25th Percentile
Source: PitchBook
The data reveals a lack of variance between the IRR quartiles of different private equity fund sizes, suggesting that no single
fund size seems to significantly outperform or underperform the rest of the industry. The importance of fund manager
selection, however, is clearly illustrated by the spread between lower and upper quartile funds regardless of fund size. For
example, the lower quartile funds for the $100M to $250M size range have returns of below -4.3% versus the top quartile
funds which have IRRs of above 15.6%. Mature PE funds as a whole are strong performers with well over half of all funds
posting positive returns and half with returns of over 7.7%.
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Source: PitchBook
Source: PitchBook
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Venture Capital
Venture capital investors and their portfolio companies have faced a number of challenges over the last 10 years, including a
shrinking pool of exit opportunities, a volatile business environment and an overabundance of capital. These and many other
issues have combined to result in a decade of stagnant returns averaging on the wrong side of 0%. The result has been a
decrease in investment in the industry compared to other alternative assets and increasing calls for venture investors to effect
fundamental changes in the way they do business. There are bright spots for venture capital however, including the 14% rise
in VC portfolio value this past year and the positive returns being generated by investors across a significant number of funds,
especially through upper quartile funds, which have returns well into the 15% range and higher.
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J-Curve
Source: PitchBook
75th Percentile
25th Percentile
Median
Source: PitchBook
This chart shows that it is not all bad news for VC returns, as over half of all VC funds have positive IRRs and the
$150M-$250M fund group has the highest 75th percentile point of any PE or VC fund group at 20.4%. When looking at other
VC performance data, it is important to keep in mind that roughly half of all VC funds do have positive returns and that, as
this chart shows, the upper quartile funds usually have very strong returns. Additionally, this chart illustrates the importance
of fund selection, as the difference between the bottom and top quartile funds for VC is as much as 27 percentage points.
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Source: PitchBook
U.S. Venture capital firms continue to hold $80.32 billion of dry powder in reserve, which is nearly 51% of the total capital
raised by VC funds since the beginning of 2003. 2003 and 2004 vintages are almost fully invested with just a small portion of
the capital reserved for follow-ons. 2005 and 2006 vintages also appear to have invested most of their capital, but these funds
have a larger store of dry powder for follow-on investments remaining. Funds sized between $250M and $500M have the
largest overhang at $10.4 billion, followed by funds over $1B with $10.1 billion.
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Fund of Funds
Private equity and venture capital fund of funds offer a number of benefits to their limited partners such as diversification,
access to top funds and professional fund selection and management. The data on U.S. fund of funds shows that they, on
average, tend to outperform venture capital funds but underperform private equity funds, yet their returns show a high
correlation to the movement of both venture and private equity. To see this, refer to the charts on pages 3 and 4 displaying
average IRR and rolling 1-year IRR. The two charts below provide a closer look at the performance data for fund of funds by
fund size and vintage year. All fund of fund strategies are aggregated together, including private equity, venture capital and
secondary.
Source: PitchBook
Fund of fund multiples show strong returns for mature funds with average fund TVPI multiples all above 1x and as high as
1.42x. The RVPI for the mature vintages remains relatively high and, like PE and VC funds, a significant part of the final returns
will be dependent on the remaining exits in the underlying fund portfolios. Fund of funds still early in their lifecycle, though,
have an average TVPI that outperforms PE and VC funds for every vintage year since 2005.
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