05/12/2006
Private equity funds continued to perform despite dearth of IPOs.
Private equity funds continued to outperform the S&P 500 in the fourth quarter of 2005 while both the venture-backed IPO market and the venture-backed mergers and acquisitions markets saw a decline, according to reports from Thomson Financial and the National Venture Capital Association.
Only 17 venture-backed companies went public in the final quarter of 2005, and there was a sharp drop in the venture-backed mergers and acquisitions market—a trend that reflected the market’s decline in October as a result of steadily increasing interest rates.
Venture capital and buyouts remained steady with long-term performance showing 20-year returns of 16.5 percent and 13.3 percent, respectively, and 10-year returns of 23.7 percent and 9.2 percent, respectively. Short-term performance reinforced stability with venture capital showing a slight decrease across quarters from 17.9 percent in 2005’s third quarter to 15.6 percent in the fourth quarter. Buyout funds showed a similar trend, with 35.2 percent in Q3 and 31.3 percent in Q4.
“We are pleased with the consistency of returns—both in the short and longer term performance numbers,” said Mark Heesen, president of the NVCA in a press release. “We are keeping our eyes firmly on the venture-backed exit markets in hopes that we will start to see a healthier IPO market in 2006. Otherwise, we could begin to see the impact in performance across the board.”