Total assets under management held by private equity funds worldwide has reached $3 trillion for the first time, according to new data from research firm Preqin.
The total, which includes both the value of portfolio companies and so-called ‘dry powder’ that’s available to private equity funds, increased by 9% from December 2010 to December 2011. The firm says that buyout funds account for approximately 40% of the industry’s assets, including $804 billion in unrealized portfolio value plus $392 billion in ‘dry powder’.
“The sustained growth of industry assets highlights the fact that private equity continues to be attractive to institutional investors that are willing to forgo liquidity in return for outperformance,” said Bronwyn Williams, manager, performance data at Preqin. “Despite the uncertainty and volatility that has prevailed in recent years, faith remains that private equity fund managers can still deliver these returns.”
Preqin reports that annualized returns over 10 years to December 2011 stand at 11.9%, which beats the S&P 500 and MSCI Europe indices, but is below the MSCI Emerging Markets index, which had a 13.9% return for the same period. Within the industry, distressed private equity funds have consistently outperformed, it notes.
“When examining the 10-year performance of the asset class it is clear that private equity can generate superior returns; however, our analysis also highlights the wide gulf between the performance of top and bottom quartile funds,” notes Williams. “Consequently the key issue for investors remains identifying, researching and selecting the best potential fund managers for their portfolios.”