A performance analysis by CFC Capital, a middle-market investment banking firm, shows that while the number of seed capital, early stage venture and buyout funds grew from 588 in 1995 to 745 in 2000, and the average annual internal rates of return (IRR) over this period averaged 40.9%, only a handful of funds, with outstanding performances were responsible.
In 1999, for example, the research shows that the average IRR weighted by amount of capital was a whopping 119%, or 95%, giving equal weighting to each of 698 funds surveyed. Yet the median return for this year was just 2.9%, CFC notes.
“These data tell us that a few of the very top private equity funds in several of the sector’s best years turned in stupendous performances, and most performed miserably by any standard,” said Arthur H. Rosenbloom, Managing Director of CFC Capital.
CFC Capital’s analysis was based on Venture Economics data for the years 1980 to 2000. The data defined the private equity fund universe as consisting of seed funds, early stage funds, balanced funds, later stage funds, small buyouts, all buyouts and all private equity funds.
see also The Private Equity Game