Private Equity Funds Rebounding Nicely

Across all types of private equity investments, 2003 saw a positive return of 18.3%.   Additionally, the group has started the year in the black, returning 7% in the first three months of 2004, according to data aggregated by Mercer Investment Consulting.   Even with the strong returns though, Mercer observes current investors appear cautiouslyoptimistic and are returning to more realistic valuation and performanceexpectations.

Leading the way among private equity investments was a strong (24.1%) return posted by buyout funds in 2003.   This group is up 9.1% to start 2004.

Venture capital funds as a group were up 8.1% in 2003 and thus far are up 4.8% in the first quarter of 2004.   Later Stage venture capital funds led the way in 2003, rounding out the year 25.4% higher.   This group shows no signs of slowing down either as the group has turned in an 8.1% return in the first three months of 2004.

Other notable returns were notched in 2003 by balanced venture capital funds which were up 11% and have begun 2004 6.9% higher.   Looking back over the previous year, the only fund type to experience a negative return was early/seed VC, which was down 7% in 2003 and lower by 0.8% during the first three months of the new year.

Still positive, but not as impressive as other private equity investments, was the 5.7% return posted by mezzanine funds in 2003.   Additionally, the group is up 2.6% at the beginning of 2004.   Mercer has an eye on this group, which the firm says has generated increasedinterest among investors of late. Specifically, Mercer says investors find this group appealing becauseof its unique risk/return characteristics: it carries slightly higher riskthan high-yield fixed income but has the potential for equity-likereturns.

Mercer’s Private Equity newsletter may be downloaded by subscribers freeof charge at  www.mercerIC.com .