LBO fund performance drops to three-year low

The average total-value-to-paid-in multiple of active LBO funds hit 1.43x in the second quarter of this year – the lowest point in three years, according to eFront.

Leveraged buyout fund performance has fallen to a three-year low, according to research from eFront.

The average total-value-to-paid-in multiple of active LBO funds hit 1.43x in the second quarter of this year, their lowest point since Q2 2016, according to the private equity data software provider’s latest quarterly report. Performance has been on the decline for three consecutive quarters and sits well below a 1.49x peak in the third quarter of 2017.

“In retrospect, 2017 was a historic year, but the decline since has been subdued, with 2018 the second best and 2019 positioned to become the third-best performers this decade,” the report noted.

The risk associated with selecting poor performing funds has also declined, with selection risk between the top 5 percent and bottom 5 percent funds falling between Q4 2018 and Q1 2019. This has since stabilised, eFront noted.

The report’s findings chime with eVestment research from May showing that private equity investors are anticipating diminished returns amid growing concern over competition for assets. More than half (52 percent) of institutional investors and consultants expected private equity performance to decline over the next three years and only 12 percent believed returns will improve.

Blackstone, for example, saw its private equity strategies generate the lowest returns among all asset classes in the second quarter of this year. Corporate private equity returned 0.7 percent, down from 9.5 percent in the second quarter of 2018. The drop was attributed to decreases in the public portfolios and some energy positions.

Meanwhile, Australian superannuation funds reported a decline in private equity performance over the past 12 months amid “fully valued” investment conditions. The asset class returned 12.7 percent over the year ending 30 June, down from 17.6 percent for 2017/18, according to a report from superfund consultancy Chant West.