European PE returns widen lead over public markets in 2022

Invest Europe, the association representing Europe’s private equity, venture capital and infrastructure sectors, as well as their investors, today published ‘The Performance of European Private Equity Benchmark Report 2022’, its fourth annual study of private equity returns. The research reveals that European private equity’s long-term outperformance over listed equity benchmarks widened in 2022, as the asset class continued to deliver superior returns to long-term investors in a period when global markets weakened under pressure from inflation and interest rate rises.
  • European Buy-Outs delivered a net IRR of 15.17%, over 950 basis points ahead of the 5.52% return for the MSCI Europe to the end of 2022. Mid-market Buy-Outs, European private equity’s engine room, generated the best performance of the segment with a net IRR of 16.55%, almost 10 percentage points ahead of the benchmark over the same period.
  • European Growth funds maintained the strongest returns since inception of any segment with a net IRR of 15.34% to the end of 2022, increasing its strong lead over the MSCI Europe which returned 6.03% over the same time frame. European Growth funds narrowed the gap on North American funds with strong net IRRs of 21.63% over three years and 20.39% over five years, underlining increasing industry maturity and strengthening performance from European scale-ups.
  • Over medium to long time horizons, European Venture Capital continued to perform strongly and eclipsed North America with net IRRs of 31.44% over five years and 23.07% over ten years. Returns for up to the 20-year mark are now ahead of the North American peer group, demonstrating the strength of Europe’s VC ecosystem and the growth trajectory of the continent’s start-ups.

While it focuses on the consistent long-term rewards available to investors, The Performance of European Private Equity Benchmark Report 2022 also highlights the short-term outperformance of the asset class in turbulent markets. European Buy-Outs delivered a modestly negative net return of -1.69% in 2022, with growth funds also only down by single digits, reflecting underlying portfolio companies’ resilience to market conditions and managers’ focus on operational excellence. The result helped underpin relative returns for investors including pension funds and insurers, offsetting public market volatility and a European equity benchmark which registered a double-digit decline.

Eric de Montgolfier, CEO of Invest Europe, commented:

  • “Whether it’s over the short-term or long time horizons, European Buy-Outs, Growth and Venture Capital significantly outperform listed equity benchmarks. That is why pension funds and insurers, as well as other long-term investors, rely on private capital investments for superior and consistent performance that can support citizens’ retirement funds and savings.”
  • “Not only does European private equity consistently beat public equity benchmarks, but it also compares favourably with returns from other private equity ecosystems around the world. The industry is creating and sustaining European champions, from dynamic start-ups to mature multinationals, and in doing so is supporting Europe’s economy and society with innovation, employment and growth.”

The strong performance to the end of 2022 reflects the growing support of institutional investors from around the world for European private equity, its experienced home-grown managers, and unique pool of world-class businesses. Invest Europe’s recently published Investing in Europe: Private Equity Activity 2022 tracked €170 billion of private equity fundraising last year, a new industry record, with almost half of all commitments coming from investors outside of Europe, including 25% from North America.

The Performance of European Private Equity Benchmark Report 2022 draws its findings from an ever-richer data set, analysing information on more than 750 European funds to deliver deep industry insight. The report presents European Buy-Outs, Growth and Venture Capital performance in terms of IRR, as well as multiple of invested capital to demonstrate net cash returns to investors. It also highlights the time to liquidity, showing that European Buy-Outs distribute capital faster than anywhere else in the world, returning cash to investors in under four years.