1-Year Private Fund Performance at Historically High Levels: Pitchbook Report

Hilary Wiek, CFA, CAIA Lead Analyst, Fund Strategies & Sustainable Investing at Pitchbook, notes that through the first quarter of 2022, one-year private fund performance was still “at historically high levels, as more muted performance in Q1 2022 was still overcome by three quarters of phenomenal 2021 performance.”

While well off from the 42.8% one-year figure seen just three quarters earlier, the 27.0% overall private capital return was still “well ahead of the 10-year average of 14.5%.”

The update from Pitchbook also noted that preliminary figures for Q2 2022 do “show a recognition that the macro environment has shifted, as private capital is indicating a -1.1% return.”

In the preliminary figures, PE and VC “trailed the other private fund strategies in Q2 2022, with the highest fliers of 2021 having further to fall back to recognize the new normal.”

As often happens when the public markets fall dramatically, private markets “tread a less volatile path.”

The report added:

“While arguments can and will be made that the muted volatility in private funds versus public markets may not fully reflect reality, private funds valuations are not indicating much concern about the macro environment in comparison to the S&P 500.”

The report also mentioned that “inclusive of the preliminary results of Q2 2022, several strategies continued to increase in value in the first half of the year, although VC, PE, and private debt have all come off their peaks.”

Compared to the 20.0% drop in the S&P, however, “the -6.7% VC return for the first six months through June was much milder than one might have expected given the headlines around the war in Ukraine, inflation, and the possibility of entering a recession.”

The report continued:

“While private funds have not shown extreme volatility overall, within strategies the median returns mask a fairly high amount of dispersion, meaning that any one investor’s experience of individual funds may vary widely from the headline median numbers.”

As an example, while Pitchbook reports that VC funds that “launched between 2004 and 2017 had a median IRR of 15.5%, top decile funds provided a 39.9% return or better and bottom decile funds have returned -6.7% or worse.”

The report added that private debt “continues to have the narrowest band of top-to-bottom returns, with the median IRR of 8.5% flanked by a top decile return of 15.7% and a bottom decile of 1.5%.”

Funds of funds (FoF) and secondaries “have seen a nice positive skew to their return dispersion—top decile FoF performed 15.2% better than the 12.5% median, while bottom decile FoF only did 8.2% worse.”

Secondaries fund outcomes “ranged from 14.9% above to 8.8% below the 13.6% median.”

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