This is the first in MJ Hudson’s series of insights into different segments of private equity performance, where our fund performance analytics team shares observations from analysing commercially available data. The series provides insights related to certain sectors and trends within the private equity landscape, throughout the year, highlighting relevant managers and funds where there has been sufficient commercially available data to create a profile. Mega buyout funds is the first instalment.
What is fund performance analytics? Providing insights into performance, risk and strategy using smart data to enhance fundraising and fund selection effectiveness, MJ Hudson’s fund performance analytics service helps managers and investors go beyond IRR.
Through data analytics we deconstruct value creation, to identify the true drivers of a GP’s track record.
Instalment 1: mega buyout funds
Mega buyout funds look to be more “recession proof”
Observation
During times of economic headwinds, private equity mega buyout funds deliver returns similar to those of their smaller peers (e.g. mid-market) but with less selection risk for LPs.
Findings
Overall, mega buyout funds typically deliver slightly lower returns than the “wider market”. The largest 20 percent of global buyout funds raised between 2000 and 2017 generated a 1.8x average return, versus 1.92x for all buyout funds.
However, mega buyout funds are generally able to manage downturns more effectively. The largest 20 percent of buyout funds raised between 2005 and 2007 – in other words, those raised directly prior to the global financial crisis – delivered returns (1.61x) that are “statistically no different” to all buyout funds as a whole (1.67x) and, crucially, with a lower coefficient of variation.
Conclusion
This confirms the hypothesis that private equity mega buyout funds are attractive during crises, as they offer similar returns to smaller funds at lower return dispersion – i.e. less risk to have largely underperforming funds.
Our library of over 500 GP profiles uses commercially available data to produce our proprietary metrics, which analyse private equity fund performance across performance/benchmarking, strategic differentiation, and risk (including return dispersion). Mega buyout funds in the MJ Hudson Fund performance analytics GP profile library include key players such as:
- Advent International
- Apax Partners
- Apollo Global Management
- Bain Capital
- Blackstone Inc.
- Carlyle Group
- KKR & Co Inc
- TPG
- Warburg Pincus and more.
If you would like a walkthrough of one of these profiles or want to discuss how we can provide more deep dive profiles for both managers and investors, please click here to set up a meeting.