Thomson: Q1 Shows Private Equity Slipped 18.5% In Past Year

July 23, 2003 ( - Encouraging returns from the broad-based equity markets have not yet rippled into one-year returns among private equity offerings, which slid for the ninth straight quarter during the first three months of 2003, losing 18.5%.

Hardest hit among the one-year private equity returns were venture capital funds dropping 29.1% of their value.   This decline is a reflection of lower valuations and the underlying portfolio companies’ struggles to generate revenues and create value, according to the Private Equity Performance Index tabulated by Thomson Venture Economics and the National Venture Capital Association (NVCA).

Additionally, the three-year return for venture capital investment has decreased dramatically, down 17.1% over the period that ended March 31, 2003. The continued slide is being attributed to the forming of funds in 1999 and 2000 that invested the bulk of their capital during the peak of the public market run up and thus have been impacted more than most by the economic downturn. Taking this out even further, this factor combined with limited exit opportunities, decreasing valuations, and the large number of young funds that have raised money in the past few years.

Venture Vex

Leading the charge down the slippery slope for venture capital funds were early/seed funds, lower by 40.5% over the one-year period, and 19.2% looking back three years.   This decline was followed by a one-year 24.1% drop among balanced venture funds, down 17.5% in the three-year return, and a negative 23.8% return for later stage venture capital funds, also lower over the past three years by 14.2%.

However, John Taylor, Vice President of the National Venture Capital Association, advised that these figures must be placed in the proper perspective. “Every asset class has been hit in the short-term and venture capital is no different,” said Taylor. “Until the IPO market re-opens, we fully expect negative short-term returns to continue. However, venture capital investors, for the most part, are in the asset class for the long-term, meaning ten years or more. These are the time horizons we are watching, and to date, they remain fairly stable.”

The latest figures from the venture capital realm should not come as too much of a shock considering earlier data showed only 22 venture funds raised $996.1 million during the first quarter of 2003.   These figures showed a significant drop in fundraising activity from the previous quarter, when 42 funds raised $1.7 billion (See VC Fundraising Slips Below $1 Billion In the First Quarter ). 

Other Private Equity

The news was not much better outside of the venture capital space.   Losing 13.4% of their value in one year was the buyout aggregate, which is also down over the three-year period by 7.7%.   Also, the remaining piece of the private equity conglomerate, mezzanine investments, was down 2%, dropping this investment categories three-year numbers to 0.7% in the red.