Buyout funds end streak of outperformance – State Street Index

Buyout funds saw the largest drop in performance in the first quarter of 2018, marking the end of almost two years of outperformance, according to the State Street Global Exchange Private Equity Index, which measures fund performance from LP data.

All private equity strategies saw quarterly decreases in the level of returns. Buyout funds saw the most significant drop in returns, from 5.23 percent in Q4 2017 to 2.09 percent Q1 2018.

Returns from private debt funds were down for the quarter, from 3.15 percent to 2.46 percent, while venture capital returns slid from 4.21 percent to 3.78 percent.

Will Kinlaw, senior managing director and global head of State Street Associates, a division of State Street Global Exchange, attributed the poor performance in the first quarter to volatility spiking across all asset classes amid an environment of continued geopolitical uncertainties, escalating risks of trade wars and rising interest rates.

He added that managers’ quarterly contribution rate dropped to a two-year low and exit activities also declined.

European-focused private equity funds saw a 2.88 percent quarterly gain in US dollar-denominated terms. Meanwhile, the US-focused funds returned 2.44 percent, and funds focused on the rest of the world gained 1.92 percent.

Information technology funds outperformed the other sectors, recording 5.2 percent in returns in Q1. This was followed by financial funds at 4.93 percent and industrials at 1.56 percent.

State Street’s private equity index is based on directly-sourced limited partnership data and represents more than $2.8 trillion in private equity investments, with more than 2,800 unique private equity partnerships, as of 31 March. The index returns reflect capital gains and losses, income, and the reinvestment of dividends.