Total AuM held by private equity funds across the world has reached $3 trillion for the first time, according to a report by Preqin, a financial analyst company.
The figure includes unrealized portfolio gains and uncalled capital.
Industry assets grew by 9% from December 2010 to December 2011, but the strongest period of growth was between 2004 and 2007, when assets increased by 136% due to the emergence of mega buyout funds, the report says. Currently, buyout funds account for about 40% of the industry, with $804 billion in unrealized portfolio value and $392 billion in uncalled capital.
The consistent top industry performers are distressed private equity funds, Preqin says. Their Distressed Private Equity index, rebased to 100 on Dec. 31, 2001, stands at 325.83 as of Dec. 31, 2011. Preqins Private Equity Quarterly index, rebased to 100 on Dec. 31, 2007, stands at 94.9, outperforming the S&P 500s 77.1.
A gap between the top and bottom performers has also grown in recent quarters, with the Preqin Top Quartile Index standing at 484.0 and their Bottom Quartile Index standing at 46.3.
While 36% of fund managers of top quartile funds going on to manage a top quartile successor fund, with 62% outperforming the median with their next fund, 36% of bottom quartile managers remain in that category, and 56% underperform the benchmark.
When examining the 10-year performance of the asset class it is clear that private equity can generate superior returns; however, our analysis also highlights the wide gulf between the performance of top and bottom quartile funds. Consequently the key issue for investors remains identifying, researching and selecting the best potential fund managers for their portfolios, says Bronwyn Williams, manager of Performance Data at Preqin.
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