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EVCA says private equity investment crept higher in 2002 but fundraising slowed

Private equity investment activity across Europe rose 12 per cent in 2002 but fundraising nearly halved, according to preliminary figures published by the European Venture Association and PricewaterhouseCoopers.

The data simply confirms the dramatic rebalancing that is still ongoing across the industry after the implosion of the technology bubble in 2000 precipitated a more general downturn in financial markets.

EVCA said private equity firms raised E19.4bn in 2002, compared with E38.2bn. The figure is the lowest since 1996, when just E8bn was raised, but broadly in line with fundraising in 1997 and 1998. The peak of E48bn in 2000 is unlikely to be matched for some years to come.

EVCA Chairman Max Burger-Calderon said: ‘2002 was a difficult year. Macroeconomic conditions and industry consolidation have caused some shifts of focus…As long as we want for solid prospects of positive economic evolution, fundraising will continue to experience difficulties for the coming years.'

Buy-out firms increased their share of total fundraising in 2002, signalling both the ongoing swing away from venture capital and a growing enthusiasm for the buy-out sector among increasingly risk-averse institutional investors. Buy-out firms accounted for 63 per cent of the total in 2002, compared with 56 per cent in 2001. Venture's share dropped to 32 per cent from 39 per cent the previous year.

The investment figures told a more encouraging story. EVCA said E27.2bn was invested in 2002 compared with E24.3bn in 2001, providing a welcome sign that the capital overhang is being gently eroded. Some 65 per cent of total investment was accounted for by buy-outs, up from 45 per cent year before.

There were no such signs of improvement in exit conditions. The value of divestments in 2002 was just E8.1bn, compared with E12.5bn in 2001. EVCA said 29.8 per cent of the total was exited through trade sales, 28.5 per cent through write-offs, and 1.1 per cent through IPOs.

Performance figures released at the same time by EVCA told a familiar story. Short-term returns made miserable reading but longer-term performance was more positive.

One-year returns for all private equity were negative 8.2 per cent, while ten-year returns were 14.5 per cent. The same figures for buy-out funds wee negative 1.6 per cent and 14.8 per cent respectively. For venture funds they were negative 27.6 per cent and 13.6 per cent respectively.

Javier Loizaga, Chairman of EVCA's Investor Relations Committee, said: ‘The preliminary findings illustrate that while the asset class did not escape the effects of global economic difficulties during 2002, it is clearly able to withstand harsh conditions and to outperform public indices due to diligent private equity and venture capital practitioners involved in actively managing funds.'

The annualised pooled internal rate of return for all private equity from inception to the end of 2002 was 11.5 per cent. The IRR for buy-out funds was 14.2 per cent, while the rate for venture funds was 10.4 per cent.

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