Study: Mid-market records superior performance

BVCA data shows UK private equity funds outperforming the public markets over both the short and long term, as well as a shift in the balance of power towards mid-market returns.

Private equity funds in the UK have outperformed the public markets over 3-, 5- and 10-year periods, according to a report from the British Private Equity and Venture Capital (BVCA).

The average internal rate of return (IRR) generated by 458 UK-based private equity funds was 15.4 percent per annum over a 10 year period, according to the study. This compares favourably with the 1.2 percent as generated by the FTSE All-Share index, which represents almost 99 percent of listed UK stocks, and the 3.7 percent as generated by the portfolios of all UK pension funds.

The study, which was produced by the BVCA, PricewaterhouseCoopers and Capital Dynamics, also showed mid-market funds performing better than their mega-fund counterparts over the medium term. Mid-market deals recorded annualised returns of 24.8 percent over the last five years, compared with mega-buyout funds' returns of 20.3 percent.

  IRR (% per annum)
  10 years
5 years
3 years
 Mid-market MBO
 14.6 24.8
 Large MBO
 16.8 20.9 14.4
 Source: BVCA, PricewaterhouseCoopers, Capital Dynamics

Roger Kelly, chief economist at the BVCA, warned that the falling returns in the shorter-term were not representative of the asset class as a whole. “Write-downs which lead to a fall in fund valuations are a snap-shot of current market conditions not an indicator of long-term performance or ultimate returns to LPs.”

Kelly also pointed to the improving performance of venture capital in the UK, which – after the tough times immediately following the 2001 technology crash – have begun to show increasingly positive returns. “This should encourage institutional investors to return to the asset class after the experience of the dotcom crash,” he said.