Benelux funds remain at the top of buyout game – report

Benelux, Nordic and UK funds were the highest performers in Europe as of end-2018, generating at least 16% IRR each.

Private equity buyout funds focused on the Benelux region were the best performers in Europe last year, a report from eFront has found.

Benelux funds generated an internal rate of return of 16.99 percent, the highest among markets in the region, according to the private equity data software provider’s Global Private Equity Performance Series. The region’s ‘weaker’ funds gradually improved performance to narrow the spread with top-quartile performers over the last year.

The IRR is slightly lower compared with 2017’s 17.27 percent.

Nordic and UK buyout funds are also among the top performers in Europe, delivering IRRs of 16.35 percent and 15.87 percent, respectively.

“Despite political and economic uncertainty created by Brexit, the UK therefore improved its already extremely attractive risk-return profile for LBO investors, remaining one of the strongest private equity markets globally,” eFront said in a statement accompanying the report.

The performance of UK buyout funds – with an IRR of 15.87 percent and TVPI of 1.64x – remained flat year-on-year. Recent vintages of 2009-15 outperformed other markets with a 19.11 percent IRR and TVPI of 1.66x, putting the UK second globally by TVPI, behind only the Nordics, the report revealed.

The Nordics is the most attractive market on a risk-adjusted return basis, as the spread in IRRs between the top and bottom quartile funds there – 15.87 percentage points – is narrower than that of low-performing regions such as DACH and Italy, eFront noted. The total value to paid-in spread between the top and bottom quartile funds in the Nordics narrowed to 1.13x and 0.95x.

France and Spain were the most improved markets in Europe. French private equity funds improved their TVPI over the past year to 1.53x from 1.45x while Spanish funds’ TVPIs increased slightly to 1.47x from 1.37x.

Across all markets, funds are generating liquidity faster, the report found. Before the global financial crisis, the duration of private equity investment required to generate liquidity was 5.4 years, which has dropped to just 3.1 years. This was mainly driven by funds in emerging markets: in the seven vintage years following the 2008 crisis, time-to-liquidity fell most notably in China, Eastern Europe and Russian markets, as well as Italy.

The Chinese buyout market matured last year, with distributed capital increasing by 6 percentage points to 58 percent last year, compared with 52 percent in 2017. Chinese funds generated IRRs of 10.43 percent and money multiples of 1.64x on average last year, according to the report.