PRINT THIS PAGE

US private equity returns continue to improve in fourth quarter of 2003

US private equity performance continued to improve in the fourth quarter of 2003, according to the latest research from the National Venture Capital Association (NVCA) and Thomson Venture Economics. Private equity as a whole recorded a strong 18.3 per cent annual performance, representing the second consecutive positive quarter for the asset class after three years of negative returns.

'The outlook for the future is becoming increasingly positive although significant improvement is still needed,' said Mark Heesen, president of the NVCA. 'The number of venture-backed IPOs and the values of venture-backed acquisitions still remains low compared to historical norms. We hope that IT spending continues to increase and that the markets remain stable. If so, performance will inevitably bounce back.'

Venture as a whole recorded an annual return of 8 per cent but early stage funds continued to report negative annual returns. The one-year return for buy-out funds was 24 per cent. Longer-term performance measures continued to show venture outperforming buy-outs, with 20-year returns for all venture now averaging an annual 15.5 per cent compared with 12.4 per cent for buy-out funds.

The recent improvement in private equity performance has largely been attributed to increasingly hospitable exit conditions. Both capital and acquisition markets have opened up in recent month, resulting in a growing number of realisations and distributions to limited partners. This, in turn, bodes well for future fundraising efforts.

'There is reason to think that continued increases are sustainable especially if the IPO and M&A exit markets continue to improve this year,' said Jesse Reyes, vice president at Thomson Venture Economics. 'While a small part of some of the increase can be attributed to improved valuations in existing portfolio companies, the majority of the increase is the result of distributions to limited partners. This has to be positive news for funds going back to the limited partner community for new fund commitments.'

Copyright © 2004 AltAssets