Private Market Performance Was Weakening Well Before Coronavirus Hit

By mid-2019, one-year IRRs of private capital funds had already been falling for six consecutive quarters, according to PitchBook.

Illustration by II

Illustration by II

It will be a while before investors know how their private market funds performed during the coronavirus pandemic that brought the longest-ever bull market to an end on Wednesday. However, the currently available performance data show that internal rates of return had already been in decline well before COVID-19 infected the global economy.

Rolling one-year horizon IRRs for private capital funds fell to 8.8 percent for the period ending June 2019, according to PitchBook’s latest global fund performance report, which tracks results through mid-2019. This was the sixth-consecutive quarter that one-year returns declined, the report said, in a downturn that has spanned all private capital strategies, including private equity, venture capital, real assets, private debt, funds of funds, and secondaries.

“While one-year returns for each of the private capital segments have been positive — even significantly better than zero — for several years now, the upward momentum seen in 2017 into 2018 stalled over the past four quarters,” PitchBook said in the report. Returns for the 12-month period ending in June 2019 were at “nearly half the levels seen in 2017 and below the S&P 500 one-year return of 10.4 percent,” the report stated.

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During the period ending in June 2019, the drop in one-year IRRs was driven by venture capital and secondaries funds. According to the report, venture capital IRRs had been in decline for more than a year, dropping from the 20 percent range in 2018 to 13.9 percent for the year ending in June 2019. Despite this sharp decline, venture capital funds were the highest-performing private capital funds for the fifth-consecutive quarter, according to PitchBook.


Secondaries similarly had a “respectable showing” with a one-year IRR of 11.1 percent for the period ending in June 2019. However, this was “well off recent highs in the area of 17.5 percent in 2018,” according to PitchBook.

Private equity and private debt funds, meanwhile, “eked out a slight improvement” during the period ending in June 2019, according to PitchBook, with one-year IRRs of 10.2 percent and 5.3 percent, respectively. Still, private equity returns remain below their ten-year average of 14.6 percent annualized.

By comparison, the S&P 500 delivered 14.7 percent annualized over the same period. According to PitchBook, private equity’s “high correlation with and underperformance of public markets during the last decade has caused some LPs to cry foul and question PE’s place in institutional portfolios.”

However, these concerns have not prevented record amounts of capital from flowing into private equity funds, and PitchBook suggested that the all-time high levels of dry powder raised by private equity firms will keep valuations high.

“Going forward, we expect relatively tepid performance figures for most buyout funds currently deploying capital due to the elevated multiples being paid and the lofty levels of debt used to support these purchase prices,” the report concluded. “Hitting prospectus targets of 15 percent net IRRs will be difficult for GPs to sustain if they buy high and hope to sell higher.”