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Latest figures show US private equity returns still suffering

US private equity returns are still mired deeply in negative territory with little sign of a significant turnaround on the horizon. The latest figures from Venture Economics and the National Venture Capital Association showed the eighth consecutive quarter of sub-zero annual returns.

The figures for the quarter ending December 31 2002 showed a marginal improvement in buy-out returns on the preceding quarter but a continuing deterioration in venture returns. One-year returns for all private equity funds measured negative 11 per cent in the latest period, compared with negative 12.3 per cent in the preceding quarter.

Venture returns worsened to an annual negative 23.3 per cent from 22.3 per cent, while buy-out returns edged up to negative 5.5 per cent from negative 8.2 per cent.

Jesse Reyes, Vice President at Venture Economics, said: ‘The two and a half year downturn in venture and private equity returns are not surprising given what has been going on in the public markets. The tide seems to have lowered all ships.'

All sectors of the asset class with the exception of mezzanine funds also showed negative three year returns, highlighting the depth of the ongoing downturn. Longer-term returns are also beginning to pale although Venture Economics said private equity's long-term performance continues to outstrip other asset classes.

The prospect for private equity returns, particularly for funds exposed to technology sectors, remains gloomy for as long as public markets are so unsupportive. Although initial public offerings only account for a minority of exits, they are also reflective of broader market conditions that feed through into merger and acquisition activity.

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