EUROPE - The EVCA is backing efforts to look into disclosure of private equity performance in Europe. At present public institutional investors in Europe are not under pressure to disclose the underlying performance of their individual investments to the public, unlike in the US.

In a member opinion poll regarding the issue, 68% of respondents state that a high level of transparency would have a positive effect on the industry and attract further investment to the private equity. However, whereas most favoured disclosure of fund performance, public disclosure of portfolio company performance was felt as negative for the private equity and venture capital industry, and potentially extremely damaging for the competitive position of the portfolio company itself.

The EVCA comments that writing-down or writing-up of a company’s valuation by a private equity or venture capital fund could be mis-interpreted and harm the company’s competitive position as well as impede ability to negotiate an exit valuation.

The long-term returns from private equity stack up well against other asset returns, argues the EVCA, in a study of pan European benchmarks. This brings down the return over 23 years to an internal rate of return(IIR) of 10.8% for European private equity.

This is attributed to lower company valuations and difficult exit markets. The very short-term returns, using one and three year IRR measures, show returns of –9.2% and 4.1% respectively.

The study found that the funds raised in the past three years account for 34% of the survey’s sample, reflecting the strong growth in the industry in that period. This clearly put further downward pressure on performance, says the EVCA.

Compared with public index returns, had the private equity cash flows been invested in public markets, the returns would have been lower. Over the 23 years when the annualised IIR was 10.8%, the Morgan Stanley Euro Index returned 2.3% per annum, the HSBC Small Company Index –5.7% and JP Morgan Eurobonds 7.2%.
Helen Avery & Fennell Betson