Currency swings hit European PE and VC returns – report

Pooled net returns of European private equity and venture capital funds in US dollar terms dropped 76% in the first quarter of 2019 from a year ago, according to data from ILPA and Cambridge Associates.

Data from the Institutional Limited Partners Association suggest dollar-denominated investors, including US pension funds and endowments, saw their returns from European private equity and venture capital funds eroded in the last 12 months, as the euro depreciated markedly.

ILPA’s Europe PE and VC benchmark, which looks at pooled net internal rate of return, fell 76 percent to 8.1 percent in Q1 2019, from 33.6 percent in the first quarter of last year, data show.

The euro depreciated by about 5 percent against the US dollar between May 2018 and April 2019, according to the European Central Bank. This reflected stronger demand for the dollar and tighter monetary policy in the US relative to the euro area.

Jos van Gisbergen, portfolio manager at Dutch pension manager Achmea, noted that PE returns in general have fallen recently, since the asset class made valuation adjustments in the fourth quarter of 2018 in line with the steep decline of the stock market at that time.

Euro-denominated returns by European PE and VC funds, on the other hand, increased over the period, from 15.8 percent net IRR in Q1 2018 to 18.6 percent in the quarter ended March 2019.

Looking at the funds across timeframes, the pooled net IRRs for euro-denominated Europe PE and VC delivered the highest returns on a three-year basis (17.7 percent), while Asia-Pacific performed best over a 10-year period (15.8 percent).

US PE and VC, meanwhile, outperformed across most periods when compared with the ILPA All Funds Benchmark.

ILPA’s data is based on about 4,000 unique funds from Q1 2018 to Q1 2019.

US PE and VC are calculated separately compared with other global regions because the two asset classes in the US are fairly distinct in terms of investment horizon, risk and size, among others, a spokeswoman for ILPA said.