BVCA Private Equity and Venture Capital ... - BVCA admin

marketplace for private equity fund holdings
for some time now and this is likely to rise in
prominence in the medium term given the
impending regulatory reforms such as Basel III
and Solvency II in Europe, and the Dodd-Frank
legislation in the US. The ‘secondaries market’,
as it is colloquially known, provides an
opportunity for Limited Partners to liquidate
or increase their exposure to private equity by
buying or selling fund stakes to other investors
in the asset class.
Methods of measurement
The primary method for calculating the return
of a private equity fund is based on the annualised
internal rate of return (IRR) achieved over a
period of time. This report measures performance
in two ways: by ‘since inception’ and ‘medium
to long term’ (over three, five, and ten years).
Since inception
This is the most meaningful way in which
to measure private equity performance.
It measures from the start of a fund’s investment
(i.e. from the fund’s first draw down) up to a
particular point in time. This therefore most
closely reflects the return an investor would
achieve if they invested at the start of the fund.
Medium to long term
Medium to long -term figures are included in
this report so that investors can compare private
equity returns with those of other asset classes,
which is not possible with the ‘since inception’
numbers. It is not, however, the most appropriate
way to measure private equity performance.
The returns quoted in the medium to long -term
figures cover all activity of funds in the survey
over the measured period to 31 December 2011
– it is not limited to those funds that were in
existence at the start of the measured period
(e.g. the ten-year return covers all activity of
all funds over the period 1 January 2002 to 31
December 2011, regardless of whether the
funds had been in existence for the whole
of the measured period).
BVCA Private Equity and Venture Capital Performance Measurement Survey 2011 11
Current year returns
One-year figures are extremely volatile and
inappropriate as a realistic measure of private
equity performance, since it is largely not
possible to invest in a private equity fund for
just one year. They can, however, be used as
an indication of how well the UK private equity
industry performed in that one year.
Reclassification of investment stages for 1996
vintage funds onwards
To reflect changes in the market, which from
the mid-1990s have seen the predominance
of larger funds, a ‘restart’ in the venture
marketplace and the growing recognition
of private equity as an asset class, 1996 vintage
funds onwards were (as of the 2005 report)
reclassified into four new investment stage
categories: Venture, Small MBO (including
development capital), Mid-MBO and Large MBO.
Pre-1996 vintage funds remain in the previous
stage categories (i.e. Early Stage, Development,
Mid-MBO, Large MBO and Generalist).
This is reflected in the tables accordingly.
Please see Glossary of Terms for definitions.
Comparative figures are not available, other
than for the subcategories of UK and Non-UK,
Pan-European and Technology and Non-
Technology, which apply to all vintages.
Pan-European funds
From 2004 onwards, an extra subcategory was
included, which is dedicated to pan-European
UK-based funds. These funds invest, or intend to
invest, in more than two European countries.
Fund multiples
We began reporting fund multiples as well as
IRRs in the 2004 report. The multiples shown
are: the total amount distributed to investors as
a percentage of paid-in capital (DPI); and the
total amount distributed plus the residual value
attributable to investors as a percentage of
paid-in capital (TVPI).