The Index, based on statistics from State Street Investment Analytics’ Private Edge Group, tracks data from 1,400 funds with commitments of more than $1,200bn, saw quarterly IRRs fall by 0.87 per cent in the first three months of the year.
Nonetheless, long-term IRRs still look healthy, as high as 25 per cent over five years, and many anticipate the current turmoil to throw-up good investment opportunities.
“We’ve noticed that funds launched in 2003, the year of the most recent (public) market bottom, have performed quite well in comparison to their peers,” said Gerard J. Labonte, a vice president with State Street Corporation.
“Times of uncertainty have historically provided fertile ground for private equity houses,” agreed Shaun Middleton, a managing director with mid-market specialist Dunedin. “We are focusing on acquisition opportunities for our portfolio companies and we believe we will see an increase in these opportunities as the economy feels the bite over the next 18 months.”
Mark Wignall, chief executive at small buyout firm Matrix Private Equity, also expects this to be “a vintage year for new investment”, particularly if “banks tighten the supply of finance to smaller companies.”
That theme is picked up by Bill Crossan, managing director of intergrated finance provider Close Growth Capital.
“Amidst all the doom and gloom, I am going to stick my neck out and say that I have never been so confident of the future,” he said. “In 2007 we saw that banks were 110 per cent open. Now they are 80 per cent shut. Operators like us see a great opportunity. For a sub-£20m deal CGC would underwrite the whole deal taking some of it as equity and some of it as debt. Because CGC prices its money across debt and equity it can be less hungry on the equity, meaning management teams can often hold onto a little bit more, giving them more of the upside if they perform well, but also protecting the downside.”
Martin Steward
|
State Street Private Equity Index: End-to-End IRRs |
