PitchBook Benchmarks Find Newer Private Capital Funds Underperform Public Equities
September 6, 2018
SEATTLE, NEW YORK, SAN FRANCISCO, and LONDON, Sept. 6, 2018 -- PitchBook, the premier data provider for the private and public equity markets, today released fund performance data through 4Q 2017 from its stand-alone performance measurement product, PitchBook Benchmarks. The comprehensive performance data is designed to help limited partners (LPs) and general partners (GPs) better understand private market fund performance relative to broader asset classes and other PE and VC strategies. In this edition, PitchBook uses public market equivalent (PME) metrics to assess the historical performance of PE and VC funds relative to public equities. According to the data, PE and VC managers have struggled to keep pace with the bull market in public equities over the last decade, and the level of outperformance for is on the decline. This lackluster performance is more exaggerated for VC funds, with even top-quartile VC funds frequently failing to beat the market.
The PitchBook Benchmarks PDF and Excel data packs are available for download here.
"The S&P 500 has posted gains each year since 2009, including three years with returns more than 20%, which has made it difficult for PE and VC funds to keep pace," said James Gelfer, senior strategist at PitchBook. "Average returns on an absolute basis for PE funds have fallen due to several factors, most importantly heightened competition that has elevated purchase-price multiples. On the flip side, VC fund performance data shows only top VC funds tend to outperform."
To provide a more comprehensive picture of how private capital's relative performance to public equities has evolved, PitchBook calculated individual public market equivalents (PMEs) for each fund included in PitchBook Benchmarks. Key findings include:
For PE funds, top-decile PME level crested at 2.00x for multiple vintages in late-1990s and early 2000s. For more recent vintages (2006 to 2015), PME has averaged 1.34x and hasn't been above 1.50x since 2005.
Bottom-quartile PME for PE exceeded 1.00x in certain years, underscoring the widespread ability of managers to beat the market.
For VC funds, the median PME is above 1.00x for only five vintages from 1997 to 2015, with four of those occurrences taking place after 2010 (i.e., vintages with mostly paper gains).
The lowest bottom-quartile PME hurdle rate for VC is 0.28x, compared to 0.72x for PE.
For more information about PitchBook Benchmarks, click here.
PitchBook is a financial data and software company that provides transparency into the capital markets to help professionals discover and execute opportunities with confidence and efficiency. PitchBook collects and analyzes detailed data on the entire venture capital, private equity and M&A landscape—including public and private companies, investors, funds, investments, exits and people. The company's data and analysis are available through the PitchBook Platform, industry news and in-depth reports. Founded in 2007, PitchBook has offices in Seattle, San Francisco, New York and London and serves nearly 18,000 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as an independent subsidiary.