Public markets drive souring PE performance

GPs have taken advantage of a seller’s market, and it is showing in the numbers, says State Street.

Private equity posted a 10.36 percent internal rate of return for the 12 months ended 31 December 2016, according to the State Street Global Exchange Private Equity Index released on Wednesday.

This compares with 6.55 percent for 2015 and 9.99 percent for 2014.

The gain can be attributed in part to exits in a strong valuation environment and a disciplined approach to deploying capital. “The general story has been a very strong public equity market and valuations have been higher than in the past,” said Will Kinlaw, senior managing director and global head of State Street Associates, a division of State Street Global Exchange.

“Private equity managers have seen this as an opportunity to exit investments. At the same time, capital calls have declined a bit, which could suggest GPs are more selective in terms of the opportunities they’re going after.”

The private equity index is composed of three strategies: buyouts, venture capital and private debt. Buyouts recorded the highest one-year return of 12.52 percent as of 31 December, followed by private debt with a 10.39 percent gain and venture capital with only 2.84 percent.

State Street compiled its index based on directly sourced limited partnership data, representing more than $2.5 trillion in private equity investments and more than 2,600 private equity partnerships as of 31 December 2016.