2001 numbers confirm downturn

Investment figures published at the 2002 EVCA Investors Conference in Geneva confirm the widely anticipated decrease in investment activity and performance for 2001.

The preliminary 2001 European Performance figures, produced by Venture Economics in association with the European Venture Capital Association (EVCA), reveal a sharp fall in the levels of private equity capital both raised and invested when compared with figures for 2001. The value of funds raised for 2001 fell by a third to E31.4bn (2000: E48bn), whilst the level of funds invested has fallen to E23bn (E34.9bn).


Despite the reduced levels of investment, Max Burger-Calderon of Apax Partners, who is head of the EVCA investor relations committee, said he was “very encouraged” by the figures. “If we take 2000 investment figures out of the equation, it is clear that the preliminary figures for 2001 are in keeping with the steady and sustained growth patterns which emerged in the 1990s.” New funds raised in 1999 totaled E25.4bn whilst funds invested stood at E25.1bn.


One-year net returns from private equity funds were –2.3 per cent in 2001, compared with +10.8 per cent for the previous year. Edoardo Bugnone, incumbent chairman of the EVCA and founding partner at Swiss-based Argos Soditic, pointed out that although this was a considerable fall, it was fairly robust in comparison with the public markets. “The Nasdaq saw one-year net returns fall to –18 per cent in 2001, which offers some reassurance to private equity investors.”


Gillian Middleton, European private equity research manager at Venture Economics, stated that pooled IRR returns on mature European PE funds in 2001 held steady at 2000 levels (14.2 per cent). The report surveyed the performance of 649 funds with a total value of E107bn. “The figures show a robustness in PE returns, although I think there is possible scope for further downward adjustments in company valuations in 2002 which could affect performance.” 


The sharpest short-term declines were seen in early stage investments, which in 2001 produced returns of –8.9 per cent. Returns across venture capital as a stood at –0.9 per cent from a high of 27.9 per cent in 2000.


Performance figures for venture, buyout and generalist funds highlighted the difficulty encountered by European investors in achieving diversification. “The five year rolling IRRs for mature European private equity funds highlight similar performance trends across the three sectors,” commented Middleton. “Unlike the US, where IRRs for buyouts and venture tend to be counter-cyclical, European IRRs have demonstrated a convergence of returns across venture, buyouts and generalist funds, making portfolio diversification very difficult.”


Looking to investment prospects for 2002, Bugnone said he believed the coming year would present great opportunities for investors. “I see a lot of potential in investments for 2002. Smart investors will be putting a lot of money into PE this year, taking advantage of what is sure to be an investor’s market.”


The figures were revealed at the 4th annual EVCA International Investors Conference in Geneva. The forum between investors and fund managers has attracted over 600 delegates, of which around 200 are investors.