We analysed the behaviour of buyout funds during the last market cycle reversal at the end of 2008. The study of the Preqin database data sheds light on a growing investor concern.
Solid overall performance
The 2005 and 2006 vintages were impacted by the 2008 financial crisis as these funds deployed a significant portion of their capital at the top of the cycle. Nevertheless, the performance of these funds was solid across all fund sizes, with a median IRR of 9.18% (data as at 30/09/2018).
At the bottom of the cycle, a link between fund size and performance…
Funds between €100m and €500m in size (with investment tickets between €5m and €100m in Small and Lower Mid Cap transactions) generated median performances comparable to those of funds over €500m (Upper and Large Cap transactions), with median IRRs of 9.70% and 9.16% respectively.
In contrast, the first and second quartiles of small funds outperformed substantially the first and second quartiles of larger funds (IRR low limit 1st quartile of 20.50% vs. 11.20%).
… but no link between fund size and underperformance
Funds between €100 million and €500 million and those over €500 million have a comparable negative average performance in the last quartile, with average IPTVs of 0.87x and 0.88x respectively, representing a capital loss of 13% and 12%.
Thus, the widespread idea that small funds and transactions are more risky than large ones is not actually demonstrated in the European buyout universe.
Jean-Yves Lagache
Managing Director – Fund investments
This note is a viewpoint of Essling Capital. It is intended to inform its readers in general and does not constitute investment advice or solicitation. Essling Capital declines all responsibility for any errors or omissions it may contain.
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