Venture capital among asset classes outperforming institutional investors, reveals a study by PriceWaterhouseCoopers
Private equity and venture capital consistently outperform UK pension fund assets, according to research conducted by PriceWaterhouseCoopers.
The work, carried out on behalf of the British Venture Capital Association, would seem to add weight to the recent Paul Myners' report recommendation that pension funds increase their weighting to this asset class.
In the 12 months to 31 December 2000, the average return for British pension funds, including their overseas assets, came in at -1.3% while the net return of private equity funds was 25.6%.
The net annualised return for private equity funds for three years to 31 December 2000 was 28.9%, against 26.4% for five years and 20.4% for 10 years. This is the internal rate of return to investors, net of cost and fees, according to the group.
By contrast pension funds managed a 10.9% annualised figure over three years, 12% over five and 13.6% over 10.
Over one, three, five and 10 years, private equity funds also outperformed the FTSE 100 and FTSE All-Share indices, again on an annualised basis. Over three years to 31 December 2000 the FTSE 100 returned 9.1%, the FTSE All-Share some 10% while private equity funds returned 28.9%.
For the one year period private equity funds returned 25.6%, compared to -5.9% for the All-Share and -8.2% for the FTSE 100, the study showed.
The 28.9% one-year private equity returns also outshone the FTSE 250, FTSE SmallCap, FT/S&P World (ex UK) and FT/S&P Europe (ex UK) indices, none of which returned more than 17%.
Martin Churchill, director of research at the Tax Shelter Report said: 'It has been seen time and time again that private equity offers far greater returns than the main indices. It is also encouraging that people are beginning to think of venture capital as a suitable investment for pension funds.'
Within the private equity market marked differences could be seen for those investing in different stages of company development, as well as between UK and non-UK investing and technology rather than non-technology opportunities.
Early stage private equity investing produced an average return of 78.9% in 2000 compared with an annualised 48.8% over three years, 41.3% over five years and 24.5% over the decade.
As such it proved to be the best performing private equity asset class out of development, mid or large sized management buyouts and generalist private equity investing over this time.
Churchill added: 'Apart from the fact that there are higher returns to be made within venture capital, pension funds will be able to get in on bigger management buyout deals, which could result in high returns.'
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