Capital distributions to private-equity investors reached a record level in2013, according to research by Preqin, the multi-national data and consulting firm. They reached $568 billion, compared to just two-thirds of that (that is, $381 billion) in 2012.
Another of the metrics key to Preqin’s research is the relationship of cap distributions to cap calls – that is, money drawn upon by managers from investors’ commitments. Cap calls have exceeded cap disbursements for most of the years since the crisis of 2007-08. But in 2013 the cap disbursements figures was the larger, and was so by a record margin. Distributions outstripped calls in the PE world by 46%.
Let us back up to the turn of the century/millennium to get a bigger frame for this picture. Both call-up and distributed value dipped somewhat at the turn of the millennium after the dotcom boom. But both numbers also increased steadily from 2002 until 2007. Each figure fell in 2008, although understandably the cap-distributed number dropped much more dramatically than the cap called-up number.
Distributions overtook their 2007 level in 2011, then remained flat (actually, decreased just slightly) into 2012, setting the stage for the big jump of 2013.
Meanwhile, the cap-called figure, which had hit a record of $480 billion in 2007, retreated to below $300 billion in 2009. In 2012 it surpassed its 2007 record, before falling dramatically in 2013.
Other Perspectives
Yet another way of looking at the same picture: what percentage of total industry assets under management is represented in a given year by the distributions? The all-time high for this metric is 17% -- a level seen both in 2004 and 2005. It is now re-approaching that level. In 2013, the distribution was 15% AUM.
Why was 2013 performance so strong as measured by in such ways? As Christopher Elvin, the head of private equity products for Preqin, explained: “The public equity market and general exit environment have created good conditions for private equity to sell assets, particularly companies bought at a discount in the period after the financial crash.”
Both PE firms and their venture capital relatives are having success with their exits. PE firms realized 1,360 buyout investments globally in 2013, while VC firms the number was 880. In both cases this is an increase from 2012, when the corresponding numbers were 1,630 and 847 respectively.
In terms of aggregate value, PE exits amounted to $322 billion in 2013, up from $289 billion in 2012. VC exits amounted to an aggregate value of $72 billion in 2013, up from $64 billion in 2012.
Optimism about 2014
Preqin is optimistic that numbers will continue up on momentum, and that (again in Elvin’s words) “many investors will be returning a proportion of those distributions back into re-ups or new investments.”
The report also breaks down private equity horizon internal rates of return by fund strategy. Looking at the PE industry as a whole, one year IRR ending December 2013 is 18%. Three and 5 year IRRs are below 15%. But 10 year IRR rises again to an even 20%.
The most impressive performance in the breakdown is that of the buyout strategy funds. For them, one year IRR ending December 2013 was almost identical to the industry average, but the middle-term horizons are both better than the industry as a whole and the longer term, 10 year horizon, is markedly so, at 24%.
Venture Capital funds show inferior performance to PE as a whole, and a fortiori inferior to the buyout firms, all along their respective curves.