2010 set to be a vintage year for private equity funds, it is claimed

Private equity funds are set for a sharp turnaround in 2010 as research suggests that cyclical effects indicate they are due to produce superior returns in the next three years.

 
A close look at the historical performance of listed private equity funds since 1993 suggests that when share prices of listed direct private equity companies traded at discounts to their net asset value they have typically produced superior returns the following three years, according to research from LPX Group, which provides investment solutions for alternative asset classes.
 
Over a 16 year period LPX points out that in the 12 years since 1993 when these investment vehicles have traded at wide discount at the year end, they have outperformed the MSCI World Index for 75% of the time over the following three years.
 
It gives as an example 1998, when listed private equity traded at a discount of 16% and went on to deliver a return of 71% between 1999 and 2001 compared to a return of just 20% on the global index.
 
A similar scenario occurred in 2002 when private equity traded at a discount of 22% and went on to return 106% between 2003 and 2005 versus the 50% gain in the world index.
 
But on the flipside when private equity traded at premiums in 1999 and 2005 of 15% and 6% respectively, the returns for the following three years were -17% and -56%.
 
At the end of 2009 private equity traded at a discount of 16%, suggesting returns from private equity in the next three years could be attractive, the group says. 

Others agree. ‘Despite a challenging two years when discounts were at their widest for most of the sector, the outlook for listed private equity is more positive going into 2010 and the LPX research substantiates this,’ said Koen Dejonckheere, chief executive of European venture capital firm Gimvv NV.
 
‘There is no reason why 2010 should not be a good vintage year, so now is an attractive time to consider investing in the sector,’ he added.
 
‘The findings are good news for investors who are seeking returns in a low growth environment. Listed private equity in particular offers private as well as institutional investors the most ready access to the asset class, so any findings that show the potential of attractive returns in the sector is a positive development for the investment community,’ said Brian Souler, who has managed Wins Investment Trusts since January 2001.