Buyout fund returns soared last year, outperforming other
areas of the private-equity market, according to State Street
The State Street Global Exchange Private Equity Index
returned 10.36 percent last year, jumping from 6.55 percent in
2015, according to a statement Wednesday from the firm. Buyout
fund gains of 12.52 percent drove the results, beating venture
capital and private debt.
What weve seen is that valuations over the last
few years have been relatively higher, prompting buyout
firms to exit their investments through a sale or initial
public offering, said Will Kinlaw, global head of State Street
Associates, the firms academic unit. Private equity
managers are taking advantage of that and returning capital to
The returns have helped fuel the tear buyout firms are on
attracting fresh capital, with CVC Capital Partners recently raising the
largest ever European buyout fund at 16 billion (about
$18 billion) in just five months. The industry is sitting on a
record level of dry powder amid signs the pace of investing may
Capital calls have slowed down a bit, said
Kinlaw. It seems like there may be an inflection here
where private-equity firms are getting more cautious.
Firms have a record $881 billion of dry powder to invest,
according to Preqin data earlier this month. Investor appetite
remains high for the asset class, with buyout funds raising a
total $54.4 billion during the first quarter, tripling the
$18.3 billion garnered in the first three months of 2012.
State Streets private equity index tracks three asset
classes: buyout, venture capital and private debt. Its
based on limited partner data representing $2.5 trillion in
private-equity investments at the end of last year, according
to the firm.
Buyout fund returns last year doubled the 6 percent gain
they produced in 2015, according to a State Street
spokesperson. Private debt produced a 10.39 return in 2016,
while venture capital gained 2.8 percent.
Its hard to predict what investment is going to
perform best, Kinlaw said. Its one of the
reasons that institutions have a diversified book of