A Memorable Private Equity Vintage

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It has been more than six years since Lehman’s bankruptcy put an end to the boom years for private equity. The years leading up to the collapse were record-breaking both in terms of the total money raised by buyout firms for European deals and the money they spent. The heady prices paid for portfolio companies using high levels of debt led many to predict a terrible performance for private equity investments from the time.

But how well did private equity actually fare?

Overall, the data shows that it has been quite a hangover for some. The performance of private equity compared with the public markets has been poor. If an investor had put $100 into large and mid-cap European stocks at the start of 2006 it would now have a tidy $160, according to MSCI. Whereas putting money into a median 2006 vintage Europe-focused buyout fund would leave an investor holding $129, according to Preqin.

But it’s by no means all doom and gloom for private equity as those averages hide a wide range of performance. Research on the performance of the biggest Europe-focused funds that were raised in 2006 and 2007 shows that some funds have fared well. These performance figures are critical to firms because they determine whether an investor will give them new money for deals and ultimately whether they survive.

Doughty Hansen topped the list with a 1.5 times multiple for its 2007 fund, which should help in its current fundraising for a €2 billion fund. Cinven generated a multiple of 1.4 times for its 2006 fund. Investors in the buyout firm were clearly happy with its boom-time performance, pledging a fresh €5 billion for deals for the firm’s successor fund in 2013 and making it one of the most successful fundraisings since the financial crisis.