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LP Seminar 5–7pm 12 October 2011 London (venue TBC) This unique event hosted and developed by the BVCA Limited Partner (LP) Advisory Board will discuss topics that are at the forefront of the debate regarding the outlook for Europe’s private equity and venture capital industry. To facilitate candid and thorough discussion, attendance is strictly reserved for LPs: pension funds, foundations, endowments, family offices and fund-of-funds. 24 January 2011 BVCA Briefing DAteS for your Diary This Autumn, three of the industry’s flagship events will be held in London. You can reserve your place today by contacting the BVCA Events team and registering your interest. BVCA LP–GP Dinner 7–10.30pm 12 October 2011 London (venue TBC) Taking place after the Seminar, the BVCA LP–GP Dinner will commence for the most senior general practitioners from BVCA member firms and the LP community. The evening’s agenda is carefully constructed to facilitate first-class networking and knowledge-building opportunities. BVCA Summit A World of Opportunity; Everything you need to know. Everyone you need to meet. In one day. 13 October 2011 London (venue TBC) Europe’s premier one-day private equity and venture capital conference returns for a third year in London this Autumn. Bringing together industry professionals, investors, advisors, government, officials, MPs, media and academics, the Summit is a comprehensive day offering invaluable networking and the opportunity to debate the key issues facing the industry. To find out more about any these flagship events contact the BVCA Events team at: e: kgauzel@bvca.co.uk t: +44 (0)20 7420 1824
industry index The real reasons to invest in private equity ‘The real reasons to invest in private equity’, is a study by Oliver Gottschalg at HEC Paris. This study uses data from 701 mature buyout funds, based in the US and EU, with an aggregate size of US$360bn. It uses a modified internal rate of return (MIRR), which makes assumptions about the financing and re-investment rates that funds face: in particular, cash inflows are re-invested at the annualised rate of market return over the remaining life of the fund, and outflows are financed at the annualised market return over the life of the fund so far. These assumptions are important when calculating MIRRs, but the authors’ sensitivity analysis suggests that they are not critical in terms of his broad results. Gottschalg decomposes MIRRs in a similar way to the BVCA-funded paper (Private Equity Fund Level Return Attribution: Evidence from UK Based Buyout Funds), although he splits timing and industrymatching into two separate categories, giving five in total. Using the whole sample, Gottschalg finds an average buyout MIRR of 7.6%, compared with an industry-matched leveraged return of 6.8%, indicating alpha of just 80bps. Although this is statistically significant, the author notes that it probably does not compensate for illiquidity and unpredictability. However, the paper also finds that top-quartile funds deliver a higher MIRR of 13.6%, and significantly outperform equally risky public market investments, which return 8.5%. This alpha estimate of 510bps is statistically (and economically) significant. Finally, the author then uses a modelling strategy to try to identify future top performing funds. endowments and the financial crisis Private colleges have increased their allocation to alternative investments steadily over the past 20 years, owing to good returns seen pre-2009. However, the financial crisis hit and college endowments suffered negative returns during 2009, leading to questions about the attractiveness of the asset class and the increasing allocations to it. ‘The Impact of Alternative Investments on Private Colleges’ Endowment Investment Returns’ by Donald L. Basch at Simmons College finds that an increased allocation to alternatives did lead to a decline in private colleges’ investment returns in 2009. Yet the full impact on these returns is perhaps smaller than it is perceived to be; evidence for the ten-year period ending 2009 shows that this emphasis on alternative investments tends to significantly increase colleges’ cumulative investment return. How exchange rates affect returns The question of whether currency fluctuations have an impact on private equity returns was examined in a recent BVCA Research Note (www.bvca.co.uk/research). Using data from 470 PE funds invested by UK managers in the past 30 years, the study converted the individual cash flows from these funds into sterling, dollar and euro denomination. Benchmarking the resulting returns against each other, the study found that exchange rates appeared to have little major impact on returns over the long term, a result borne out by repeating the process using the Purchasing Power Parity (PPP) measure. The note found, however, that on a three-year IRR horizon, exchange rates did play a significant role on the returns of sterling compared to dollars and euros. Given the fluctuations in currency seen during the recent financial crisis, and the significant depreciation of sterling in 2008, this is perhaps unsurprising. end of year cheer December saw the publication of the BVCA‘s Third Annual Report on the Performance of Portfolio Companies, produced by Ernst and Young. The report looks at a population based on the latest annual audited reports of the 43 portfolio companies owned by PE firms that are voluntarily subject to the Walker Guidelines on transparency and disclosure. The report finds that the year-on-year growth rates in revenue and profits slowed from previous years, but remained positive in the range of 3-4%, on both measures of organic growth and bolt-ons. Further, benchmarking against both UK economy labour statistics and the FTSE All-Share Index, PE companies outperformed on almost all metrics, with only operating capital employed within PE portfolio companies (-3.9%) being lower than the comparable sector-weighted FTSE numbers (5.6%). Whilst the report found that PE-backed portfolio companies were affected by the recession - performance in 2009 was down compared to 2008 performance metrics – the news that they continued to outperform their publicly quoted peers was welcomed by the buyout community. Staying power PE-backed buyouts are observed to have fewer early exits within 12 months and less liquidations than their pure, non PE-backed counterparts. This is the key finding from a recent study – ‘Staying Power of UK Buyouts’ – by Ranko Jelic at the University of Birmingham. Using a dataset spanning 1966-2004 and covering 1,089 deals worldwide, the study found that the total number of early exits across all buyouts has declined over time. However, the PE-backed subsample exhibited lower levels of early exits compared with the non PE-backed subsample. The study also found that only 2% of PE-backed buyouts resulted in liquidations, which is lower than the average for the whole sample and the failure rate of 3% for all UK private companies. January 2011 BVCA Briefing 25
Page 1 and 2: 2011: the Year of Venture fundraisi
Page 3 and 4: January 2011 Contributors Special t
Page 5 and 6: CeO Simon Walker Happy New Year and
Page 7 and 8: Q) Is liquidity important to you? Q
Page 9 and 10: Comment New fund, new challenges Th
Page 11 and 12: Comment To do or not to do, that is
Page 13 and 14: Comment Mega funds or mega flops? A
Page 15 and 16: these was the Inaugural Venture Cap
Page 17 and 18: We are size agnostic when we look a
Page 19 and 20: iHealthcare Just as Apple revolutio
Page 21 and 22: BVCA Portfolio Company Management A
Page 23 and 24: which will collect comprehensive an
Page 25: AifM Directive The BVCA Regulatory
Page 29 and 30: 2010 UK Pe fundraising by Stage foc
Page 31 and 32: The BVCA Transaction Tracker is (a)
Page 33 and 34: Transaction tracker: UK private equ
Page 35 and 36: Case study The Right Fit Kurt Geige

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