An Investigation of Private Equity Buyout Performance During the 2007-2009 Financial Crisis
Finance and Financial Management
This paper investigates the net-of-fees performance of North American and European Private Equity Buyout Funds (vintages 2002 – 2007) that invested in the 2007-2009 financial crisis. To evaluate performance this study looks at both absolute return metrics such as Internal Rate of Return (IRR) and Total Value to Paid-In (TVPI) and the relative public market equivalent (PME) method conceived by Kaplan and Schoar (2005). This research builds on a 2015 Gianfrate and Loewenthal study by utilizing an updated March 31st, 2018 Preqin Private Equity Cash Flow database to gather date-specific fund-level cash flow data on 249 buyout funds as well as Bloomberg historical return data on ten public equity indices. The present study found a mean buyout IRR of 12% and a TVPI of 1.68, slightly lower than that observed in prior research. However, overall 2002-2007 buyout funds did substantially and consistently outperform their respective public market benchmarks with an average PME, calculated using relevant public benchmarks, of 1.11 for North American buyout funds and 1.10 for European buyout funds. The study also observed a significant downward PME trend on the vintage level between 2002 and 2007 as well as a positive relationship between fund size and performance.