In a study of 501 UK-managed private equity and venture capital funds, the combined internal rate of return (IRR) was 14.3 per cent a year for the decade to 2011. That figure compares to 5.9 per cent for all pension fund assets and 4.8 per cent for the FTSE All-Share.
Further findings reveal that venture capital funds established after the dotcom bubble (post-2002) have generated an IRR of 4 per cent since inception. Last year they gained 5.5 per cent, more than any other category of private equity investment except mid-market management buy-outs, which also returned 5.5 per cent in 2011.
BVCA members, of which there are 183 based in the UK, invested £18.6 billion during 2011, down from the 2010 figure of £20.4 billion but significantly up from the five-year low of £12.6 billion recorded in 2009.
Joe Streer, research director at the BVCA, comments, ‘These data show that private equity and venture capital continue to weather the UK’s weak economic climate and deliver long-term returns to investors.
‘In the face of uncertainty and financial market volatility, returns this year remained positive, and over the longer term continue to outperform other asset classes.’
Total venture capital spend in the UK, including seed, start-up, early stage and later stage investments, grew to £347 million in 2011 compared to £313 million the previous year, on the back of a big increase in the amount of capital allocated to later stage businesses.
UK investment in the expansion and growth capital arena mirrored its performance in 2010 when £1.65 billion was spent. However, the amount spent on financing management buy-outs fell sharply from £4.75 billion to £2.95 billion.
John Dwyer, global head of private equity at PricewaterhouseCoopers, adds, ‘The private equity industry is still showing good returns and has proved itself capable of adding real value to the efficient execution of business and commerce.
‘In addition, it has provided some real cover for the lack of consistent liquidity available in public markets.’
