PE returns hit two-year high

‘Attractive valuations’ have led to more capital being returned during the first quarter.

Private equity delivered its highest quarterly returns in two years during the first quarter following a particularly strong performance in buyout funds, according to State Street’s Global Exchange Private Equity Index.

Returns climbed to 4 percent across more than $2.5 trillion of private equity investments during Q1, according to the index. Buyout funds returned 4.2 percent, while venture capital and private debt posted 3.5 percent and 3.1 percent gains, respectively.

European-focused private equity funds had the strongest performance, with the weaker dollar contributing to a 4.1 percent spike in dollar-denominated terms. US-focused funds returned 3.9 percent in the quarter, up from 2.6 percent in Q4 2016, while funds focused on the rest of the world rose from 2.8 percent to 3.9 percent over the same period.

The high returns are due to the “attractive valuations” currently available for exits, Chirag Patel, head of innovation and advisory for EMEA at Boston-based State Street Global Exchange, told Private Equity International.

Stretched valuations are reflected in the level of capital currently being deployed, Patel added.

Total dry powder dropped from a peak of $488 billion in May 2016 to $461 billion in March, Anthony Catino, managing director for alternative investment solutions at State Street, said.

Information technology-focused funds returned 5.4 percent over the period, the highest across all sectors. Tech investments have on average sold for an enterprise value of 11.14x EBITDA since the recession, compared with 9.67x for other deals, PEI reported last week.

The firm’s GXPEI is based on limited partnership data with more than 2,700 unique private equity partnerships as of 31 March.