Preqin: IT-Focused Funds Deliver Strong Performance, Industrial Sector Lags

In its September private equity and venture capital spotlight, Preqin reported a strong long-term performance for the buyout market, which currently holds $1.49 trillion in assets under management—57% of global private equity industry assets.

Preqin determines that one of the reasons institutional investors commit vast amounts of capital to buyout funds is because of their strong long-term returns, which have been performing consistently well since 2005. According to the report, median net internal rates of return (IRRs) for vintage funds have ranged from 9.8% in 2005 to 17% in 2012, a 7.2% spread.

However, return ranges in growth funds and venture capital over the same period have been much higher, at 10.7% and 16.4%, respectively.

Over the five-year period ending December 2016, the average annualized returns for buyouts reached 16%. Across all vintage years, buyout funds taking a diversified approach across multiple sectors have median returns of 13.7%. Their net IRR performance has a standard deviation of 19.8%.

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In sector-specific funds, Preqin also notes that information technology (IT)-focused funds have the highest median IRRs at 15.1%, while the lowest median returns are in energy and utilities-focused funds, at 4.5%.

Depending on the industry focus, the returns for the funds will differ. Preqin found 36% of IT-focused funds have net IRRs inserting them in the top quartile—the largest proportion of any sector. By contrast, 28% of industrial-focused funds delivered returns in the bottom quartile, while 55% of business service-focused funds have IRRs below the median for all buyouts.

“Buyout funds are the stalwart of the private equity industry, and account for more than $1.5 trillion in assets under management as of the end of 2016. Part of their enduring appeal to investors has been the ability of buyouts to deliver strong, diversified long-term returns, even in challenging circumstances. Even across the period of the Global Financial Crisis, median returns from buyout funds barely dropped below 10% on an annualized basis,” Preqin’s Christopher Elvin, head of private equity products, said in a statement. “However, while buyout fund performance has been consistent overall, there is more variance among those vehicles focusing on specific sectors. Investors should certainly be aware that while sector-specific funds can deliver some of the highest returns of any buyout fund, the potential for reward comes with increased risk.”

Tags: Buyout Funds, Preqin, Private Equity, Venture Capital

Missouri State Employees’ Retirement System (MOSERS) has a funding deficit exceeding $5.2 billion, Missouri State Treasurer Eric Schmitt told a panel of lawmakers Wednesday.

“The future of the state’s finances are at stake,” Schmitt said at the meeting. “Five billion dollars means we are thousands of dollars in debt for every single Missouri taxpayer. This liability is the number one liability for our state—a problem that, without action, will only get worse and worse every year.”

Schmitt said that MOSERS is currently 60% funded, missing 16 projections in the past 17 years, and considers a pension plan to be healthy when its funded status is 80% or higher.

“So 60% is alarming, but even more alarming is the trajectory,” he said. “In the early 2000s, we were nearly 100% funded. Now, just a few years later, we’re at 60% and falling.”

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The treasurer attributed the MOSERS deficit to past administrations for having unreasonably high expectations of investment earnings and expensive investment fees paid by the state that went to Wall Street rather than stay in Missouri. He also called the plan “the number one threat to the state’s AAA credit rating” in a newspaper op-ed, arguing that funding for schools, roads, health services, and other priorities would also suffer should the problem go unaddressed.

Schmitt said he would suggest MOSERS lower expectations for earnings as well as lower its investment fees during Thursday’s meeting.

“This crisis is no longer on the horizon, it is at our doorstep,” Schmitt said. “The future of Missouri’s finances are at stake, and this is a conversation that we need to have.”

MOSERS could not be reached for comment.

Tags: Missouri, MOSERS, Pension, Pension Deficit

Missouri Treasurer: State Pension Crisis ‘Is at our Doorstep’