Two reports from the British Venture Capital Association (BVCA) have revealed contrasting fortunes for the private equity industry in the UK.
UK private equity funds raised a total of £7.8bn last year, down 43 per cent on the high water mark of 2001, when £13.6bn was raised. Of the 2002 total, UK pension funds channelled just £796m into private equity – down from £1.6bn the previous year.
UK banks committed £1bn to the asset class in 2002, representing 14 per cent of all funds raised, compared with 2001, when their investment represented five per cent of all funds raised.
UK insurance companies also increased their allocation to the industry, investing £739m in the UK private equity industry in 2002, up 64 per cent on the previous year. A total of £361m was returned to investors during the year, equating to just under five per cent of the overall total. Funds of funds accounted for 14 per cent of all funds raised.
The BVCA also said that UK private equity outperformed UK pension funds and all FTSE indices over one, three, five and ten year periods. In 2002, UK private equity achieved a net return of 1.4 per cent, considerably better than UK pension funds and the FTSE All-Share Index, which returned minus 13.9 per cent and minus 22.7 per cent respectively.
Worldwide investment by UK private equity firms fell eleven per cent in 2002 to £5.46bn from £6.16bn the previous year, the association said. Just under half of all companies financed were in the technology sector, although investment in that sector fell by more than 60 per cent to £500m. For the second year running, larger MBO funds and non-technology focused funds fared best.
The total amount divested fell by three per cent to £2.6bn, with trade sales accounting for 31 per cent of the overall amount divested at £791m. Despite the disappearance of the IPO market, divestment by flotation accounted for 20 per cent (£571m) of the overall total, largely the result of CVC and Cinven’s listing of bookmaker William Hill. Write-offs accounted for £628m.
“Despite the challenging trading conditions of the last twelve months, the private equity industry has remained robust and continues to outperform all other comparable asset classes,” said John Mackie, chief executive of the BVCA. “The industry has delivered superior returns on investments and continues to make a crucial contribution to the UK economy.”