Private equity as an asset class posted a one-year return of 10.36% in 2016, according to the State Street GX Private Equity Index. This represents an increase from the 6.55% return seen in 2015, says State Street.
The State Street Global Exchange Private Equity Index (GXPEI) ended 2016 with an overall gain of 2.58 percent in the fourth quarter, a slight decrease from the 3.8 percent return in the third quarter.
Buyout funds posted a strong annual return of 12.52 percent but venture capital continued to face headwinds.
Fourth quarter highlights
- Buyout funds up 3.07% (down from 3.86% in Q3)
- Private Debt funds up 3.04% (down from 3.59% in Q3)
- Venture capital up just 0.47% in Q4 (down from 3.72% in Q3)
State Street says that the PEI is based on directly sourced limited partnership data. The data covers more than $2.5trn in private equity investments and over 2,600 unique private equity partnerships, as of 31 December 2016.
“Public markets continue to show signs of strength with valuations at healthy levels,” said Will Kinlaw, global head of State Street Associates. “In private markets, we saw heightened exit activity in recent years as managers took the opportunity to exit.
“Recently, however, capital calls have slowed. The evidence suggests that general partners are taking a careful approach in identifying opportunities that provide superior returns at decent valuations.”
- Buyout recorded the highest one-year return of 12.52%
- Private debt up 10.39%
- Venture capital up just 2.84%
European-focussed private equity funds recorded a gain of 2.16% in US$-denominated quarterly returns, down from 4.08% in the previous quarter. Euro funds posted an 11.03% annual gain at the end of 2016, up from 7.10% in 2015.
Fundraising activity in 2016 was in line with recent years. However, the monthly contribution ratio remained very low throughout the year. The capital deployment rate of newly closed funds continued to slow down in 2016, lower than the historical pooled level.
“We have seen solid fundraising activity across all private equity sub-classes recently,” said Anthony Catino for State Street. Dry powder is at historical levels and investors are eager to put their money back to work and maintain PE asset allocation levels, he says.