PRESS RELEASE: PERFORMANCE DATA Long-term performance of private equity remains strong Sharp devaluations drag down short-term horizons EMBARGOED UNTIL 01.00 CET Friday 13 th Geneva, 12 March 2009 The long term performance of the European private equity industry remained robust through 2008, despite a difficult exit environment and downward pressure on valuations, according to data compiled by Thomson Reuters in association with EVCA. The Performance Benchmarks, which were released at EVCA s Investors Forum in Geneva, are based on private equity fund performance over the past 29 years and the sample includes up to 1,310 funds. Net internal rate of return (IRR) since inception to December 2008 remained strongly in positive territory, at +10.3% for all private equity, with buyout funds returning +14.2% and venture funds returning +3.1% (Table 1). This compared with performance to the end of 2007 of +12.1%, +16.6% and +4.2% respectively. Macro-economic volatility over the past year caused a slump in short-term horizons of -24.9% for all private equity, including -17.9% for all venture and -26.4% for all buyouts. Within the buyout segment, mega buyout one-year horizons fell to -27.1%, compared with +20.1% in 2007. Small buyout fell from +39.5% in 2007 to -23.8% in 2008. Mid-market buyout fell from +25.2% in 2007 to -17.9% in 2008 (See Table 2). The mid-to-long-term performance of buyouts remained strong, on the back of several years of high returns, with 3-year net IRR to December 2008 at +8.5%, and the 5-year figure at +14.1% (See Table 2). European venture funds broke even over the 3-year horizon period while 5-year net IRR increased to +2.1% (see Table 2). Top Quarter performance in both buyout and venture remained very strong with a +30.9% pooled average top quarter IRR for buyouts and +13.3% for venture, and +22.7% for all private equity funds (Table 3).
Long-term performance robust The sustained long-term performance of the overall private equity industry continued to be superior to the performance of all public market comparators (JP Morgan Euro Bonds Index, Morgan Stanley Euro Equity Index and HSBC Small Company Index) (See Figure 1). Javier Echarri, Secretary General of EVCA, said: Macro-economic conditions have precipitated a sharp slump in distributions, particularly since 2008, with exit markets particularly difficult. A strong depreciation of values in the near-term have hit one-year return horizons, but European private equity funds have demonstrated a consistently strong performance across a number of years. While extreme volatility prevails in the wider markets, private equity s long term investment horizon affords it the ability to profit from counter-cyclical opportunities. While IRRs are likely to fall further in the near term for the existing portfolio, those vintages invested in a downturn have historically been those that perform the best. Leon Saunders Calvert, EMEA Deals and Private Equity Director at Thomson Reuters, commented: As expected, the current recession is affecting private equity performance through a number of factors including reduced valuations, lower exit multiples and reduced opportunities for refinancing. This is especially noticeable in the short-term horizon returns, for funds of recent vintage, and for the larger buyout funds. However, with sustained long-term IRRs, private equity still outperforms public equities and bonds and the dry powder currently available should provide interesting investment opportunities in the long run given the low entry multiples. ** ENDS ** - 2 -
Notes to Editors: European Private Equity & Venture Capital Association EVCA is the voice of European private equity and venture capital. We promote and protect the interests of our more than 1,300 members, to ensure they can conduct their business effectively. EVCA engages policymakers and promotes the industry among key stakeholders, including institutional investors, entrepreneurs and employee representatives. EVCA develops professional standards, research reports and holds professional training and networking events. EVCA covers the whole range of private equity, from early-stage venture capital to the largest buyouts. For more information, please visit www.evca.eu Thomson Reuters (formerly Thomson Venture Economics) - Building on the wellestablished position and research practices of Thomson Venture Economics and Thomson Macdonald, Thomson Reuters has provided private equity information for over 30 years. Today, our Private Equity Performance Benchmarks are considered the industry standard for unbiased third-party benchmarking and Thomson Reuters produces comprehensive benchmarks covering over 3,000 funds based on extensive work with General Partners and Limited Partners worldwide. Thomson Reuters is the world s leading source of intelligent information for businesses and professionals. We combine industry expertise with innovative technology to deliver critical information to leading decision makers in the financial, legal, tax and accounting, scientific, healthcare and media markets, powered by the world s most trusted news organization. With headquarters in New York and major operations in London and Eagan, Minnesota, Thomson Reuters employs more than 50,000 people in 93 countries. Thomson Reuters shares are listed on the New York Stock Exchange (NYSE: TRI); Toronto Stock Exchange (TSX: TRI); London Stock Exchange (LSE: TRIL); and Nasdaq (NASDAQ: TRIN). (www.thomsonreuters.com) Contact Ross Butler, EVCA, Tel: +32 477 52 15 53 or +32 2 290 02 30, ross.butler@evca.eu Clare Arber, Thomson Reuters, Tel: +44 207 542 62 56 or +44 7990 567 256, clare.arber@thomsonreuters.com - 3 -
Table 1. Cumulative Fund Type Performance (as of 12/31/2008, based on net IRR calculation) Fund Type Sample Pooled Size Average Early Stage VC 346-1.1 Balanced VC 200 3.3 Development Stage 216 7.4 All VCVenture 760 3.1 All Buyouts 428 14.2 Generalist 120 9.1 All Priv Equity 1,310 10.3 Thomson Reuters 2009. All rights reserved. Table 2. Investment Horizon IRRs to 31.12.2008 Fund Type 1 Yr 3 Yr 5 Yr 10 Yr 20 Yr Early Stage VC -12.30-1.70-0.20-2.40-1.10 Balanced VC -19.30 1.70 2.70 0.60 3.30 Development Stage VC -17.90 0.30 4.20 3.70 7.40 All Venture -17.90 0.00 2.10 0.40 3.10 Small Buyouts -23.80 5.30 8.30 9.50 12.30 Med Buyouts -17.90 9.30 14.90 18.50 16.70 Large Buyouts -23.90 11.40 11.40 19.30 19.60 Mega Buyouts -27.10 8.40 16.00 12.00 11.90 All Buyouts -26.40 8.50 14.10 13.30 14.10 Generalist -8.20 5.50 7.90 8.00 9.20 All Priv Equity -24.90 6.30 10.50 9.30 10.40 Thomson Reuters 2009. All rights reserved. Table 3. Top Quarter Funds (as of 12/31/2008, based on net IRR calculation) Pooled Average Stage Upper Quartile top Quarter IRR Early Stage 1.2 12.9 Development 9.0 18.8 Balanced 5.2 12.4 All Venture 4.7 13.3 Buyouts 17.5 30.9 Generalist 9.3 22.2 All Private Equity 10.2 22.7 Percentile 100 75 50 25 Pooled Average for the Quarter 22.7% 5.9% -3.3% -18.2% Net IRR 10.2% 0.0% -5.5% Thomson Reuters 2009. All rights reserved - 4 -
Figure 1. Comparators*: annualised net pooled IRRs since inception to 31.12.2008 20 15 Morgan Stanley Euro Equity JP Morgan Euro Bonds HSBC Small Company European Private Equity 10 10.3% IRR (%) 5 8.9% 2.8% 0-5 2000 2001 2002 2003 2004 2005 2006 2007 2008-1.8% -10 *Comparators are Internal Rates of Return (IRR). IRRs for public market indices are calculated by investing the equivalent cash flows that were invested in private equity into the public market index. Then an equivalent IRR is calculated for each index. Calculations based on methodology proposed by J Coller and published by A Long and C Nickles. Source: Thomson Reuters/EVCA - 5 -
Terminology Venture Capital Private Equity IRR Internal Rate of Return Pooled IRR Horizon IRR 5-year Rolling IRR DPI - Distribution to Paid-In RVPI - Residual Value to Paid-In Residual Value TVPI - Total Value to Paid-In Early Stage Fund Development Fund Balanced Fund Buyout Fund Generalist Fund Morgan Stanley Euro Index (MSEURIL) HSBC Small European Company Index (JCEEUC$) Refers to Early-Stage (seed and start-up) and Expansion finance Provides equity capital to enterprises not quoted on a stock market and refers to all stages of industry, i.e. Venture Capital and Buyouts. The IRR is the interim net return earned by investors (Limited Partners), from the fund from inception to a stated date. The IRR is calculated as an annualised effective compounded rate of return using monthly cash flows to and from investors, together with the Residual Value as a terminal cash flow to investors. The IRR is therefore net, i.e. after deduction of all fees and carried interest. The IRR obtained by taking cash flows from inception together with the Residual Value for each fund and aggregating them into a pool as if they were a single fund. This is superior to either the average, which can be skewed by large returns on relatively small investments, or the capital weighted IRR which weights each IRR by capital committed. This latter measure would be accurate only if all investments were made at once at the beginning of the funds life. The Horizon IRR allows for an indication of performance trends in the industry. It uses the fund s net asset value at the beginning of the period as an initial cash outflow and the Residual Value at the end of the period as the terminal cash flow. The IRR is calculated using those values plus any cash actually received into or paid by the fund from or to investors in the defined time period (i.e. horizon). The 5 year Rolling IRR shows the development of the five year Horizon IRR, measured at the end of each year. The same definition can be applied to other years. The DPI measures the cumulative distributions returned to investors (Limited Partners) as a proportion of the cumulative paid-in capital. DPI is net of fees and carried interest. This is also often called the cash-oncash return. This is a relative measure of the fund s realized return on investment. The RVPI measures the value of the investors (Limited Partners ) interest held within the fund, relative to the cumulative paid-in capital. RVPI is net of fees and carried interest. This is a measure of the fund s unrealized return on investment. The estimated value of fund assets, net of fees and carried interest. TVPI is the sum of the DPI and the RVPI. TVPI is net of fees and carried interest and is also known as the multiple. Venture capital funds focused on investing in companies in the early part of their lives. Venture capital funds focused on investing in later stage companies in need of expansion capital. Venture capital funds focused on both early stage and development with no particular concentration on either. Funds whose strategy is to acquire other businesses; this may also include mezzanine debt funds which provide (generally subordinated) debt to facilitate financing buyouts, frequently alongside a right to some of the equity upside. Funds with either a stated focus of investing in all stages of private equity investment, or funds with a broad area of investment activity. The equity index from Morgan Stanley Capital International, which tracks stocks from various European nations. Covering 18 European nations, this index defines small cap companies by ranking all companies in Europe by market capitalisation, removing large cap companies and retaining the remaining companies. The market cap - 6 -
ranges from approximately 30m to 3,500m. JP Morgan Euro Bond Index (JPMPBME) The European portion of the most widely used benchmark for performance measurement; measures total, principal and interest returns for those traded issues available to international investors. - 7 -