Setting up a monitoring system in private equity
This edition of Frontline uses eFront Insight data to see whether the deployment of some simple automated triggers, based on …
source: eFront INSIGHT
LBO funds have enjoyed almost a decade of increasing performance since the financial crisis, reaching an all-time high in the third quarter of 2017, with an all-time low risk in the preceding quarter. Following this peak, performance has drifted slightly lower through the first quarter of 2018, marking three consecutive quarters of declines, reaching 1.45x. However, performance remains well above the level seen during the financial crisis, when returns fell to below 1.1x, and active global LBO funds have outperformed the average of 1.3x achieved between 2009-2018 by 0.15x. Risks have inched higher, but from an all-time low, meaning that while fund manager selection is more challenging, the general trend is towards lower risk in private equity fund selection. Putting capital to work is, however, ever more difficult, as time-to-liquidity decreases sharply, reflecting the growing challenges presented by high levels of dry powder and increasing competition. Though overall fund performance tends to be higher than the long-term average, the first quarter of 2018 has confirmed divergence between vintage years: 2009 and 2014 are so far delivering a solid performance, while 2010 and 2013 are more subdued.