From the one-year to 10-year horizons, IRRs of PE funds worldwide gradually advance from 8.2% to 13.1%. However, breaking down performance by size bucket shows that funds of $500 million or more are the only vehicles seeing improvement on a longer horizon.
This could be attributable to the greater means of larger fund managers, as they can devote significant resources over a longer timeline and reap gains on portfolio companies that have been held for that long. It could also be a result of bigger acquisitions simply requiring more time to turn around before exits can be achieved.
Looking at smaller funds, vehicles under $250 million in size essentially don’t see their performance budge past the three-year horizon. The somewhat stagnant IRR over time shows how the smallest category of funds has seen capital flows plateau, implying an unrelenting if unspectacular realization of most investments.
In a similarly stable fashion, midsized funds—those between $250 million and $500 million—have seen the least fluctuation in IRR over all horizons. This could be a product of the recent exit environment, with strategic buyers looking more often to companies in PE fund portfolios of that size to achieve growth.
As such exit activity slides overall and aging holdings remain in PE portfolios, there have been declines in IRRs across multiple horizons. 10-year horizon IRRs across all PE vehicles slid lower for the fourth consecutive quarter, down to 13.1%; Five-year horizons came in at 12.2%, the lowest level since 4Q 2013.