News: Buyside

European Private Equity Funds Formed 1980 – 1999 Net Returns to Investors From Inception to 31 – Dec – 2001

Size (Mill euro) Number Average Pooled Quart Med DPI RVPI TVPI
0-25 217 11.4 10.2 13.4 4.8 1.04 0.90 1.94
25-50 113 7.7 9.1 15.7 7.2 1.12 0.51 1.63
50-100 92 9.2 9.3 17.6 6.1 0.70 0.66 1.36
100-250 84 16.4 16.5 22.6 9.0 1.01 0.68 1.69
250-500 33 22.3 26.3 38.2 15.7 1.19 0.80 1.99
500 mill + 32 16.5 14.0 15.8 7.8 0.73 0.73 1.46
All Private equity 571 12.0 14.2 16.9 6.5 0.86 0.72 1.58

Myners: PE firms must differentiate
Paul Myners, author of the influential report into institutional investment that bears his name, told delegates at the EVCA International Investor Conference that private equity had to address a number of urgent issues if it was to perform well going forward. Myners first said private equity's role was to help ?bring the market back to its senses.? In an environment typified by chaos and uncertainty, private equity managers were the ?maggots that cleaned out the wounds.? They should feel good about their work as it helped drive innovation and, unlike other, more speculative areas of investment such as hedge funds, generated genuine social and economic value.

But Myners also said firms still had to develop a more distinct approach to managing capital. ?You have to be able to articulate exactly how you make money.? In order to successfully position themselves in an increasingly competitive market place, firms had to work on their geographic and sector expertise, as well as significantly improve their corporate governance at both firm and fund level. Myners said that in his experience, too few GPs applied management standards that were consistent with those they applied to their investee companies. Better asset gathering skills would be needed as well.

Firms would have to work harder to generate returns for their investors going forward. Financial engineering alone could no longer be relied upon; instead firms would do well to hone their operational skills in order to control and actively manage their investments. In many cases this would require a wholesale makeover of skillsets inside firms, particularly when succession issues had to be managed as well. Myners also reported that in the US, there had been a ?total loss of confidence? among venture capitalists, leaving in its wake ?huge opportunities for the fundraising of European players,? as US institutions were increasingly looking outside their home market to put money to work in the asset class.