European private equity outperforms listed equities over long term, new research shows

  • European buy-outs delivered an IRR of 15.00%, beating MSCI Europe index return of 5.84%
  • European VC returns an IRR of 16.79% over a 10-year horizon, close to that of North American funds

Invest Europe, the association representing Europe’s private equity, venture capital and infrastructure sectors, as well as their investors, today published two new reports demonstrating private equity’s long-term outperformance of public equities. The data shows that European buy-outs delivered an annualised net IRR of 15.00% since inception to end-2019, far ahead of the 5.84% achieved by the MSCI Europe, while growth investments and venture capital also clearly beat equities benchmarks.

The research comes from two Invest Europe publications: the first, ‘Benchmarking Public and Private Markets with the Public Market Equivalent (PME)’ compares a range of performance metrics to determine their relative strengths and weaknesses, while the second, ‘The Performance of European Private Equity Benchmark Report 2019’, records private equity performance over the last four decades.

With the publication of these reports, Invest Europe is putting private equity performance under a new lens, comparing like-with-like to create a transparent and fair account of private equity performance and its contribution to investors.

Eric de Montgolfier, CEO of Invest Europe, commented: “As the private equity industry has matured, it has become clear to fund managers and investors alike that traditional measures for comparing private equity investments with listed equities are perfectible. With the publication of these two reports, Invest Europe is demonstrating European private equity’s clear outperformance while supporting the drive to more consistent and robust performance metrics that can enable investors to compare assets more easily.”

Invest Europe’s report on benchmarking public and private markets investments analyses the different metrics available for measuring private equity fund performance. It identifies the strengths and weaknesses of the internal rate of return (IRR), multiple of invested capital (MOIC) and public market equivalent (PME).

The report identifies the modified public market equivalent (mPME), one of the second-generation PME metrics developed by investment advisory firm Cambridge Associates, as an additional and sophisticated tool for assessing private equity performance. mPME enables investors to take account of the effect of holding periods on investment performance and separate the intrinsic performance of the fund manager from the general evolution of markets. It also helps address the challenge of assessing the performance of active funds, that are conservatively valued during their lifetimes, against public equities.

Invest Europe’s performance report measures European private equity returns against relevant stock market indices, as well as private equity funds from North America and the rest of the world on a range of metrics.

The results show that for time horizons of 10 years and over, European buy-outs have routinely delivered an annualised IRR of between 15.00% and 15.50% net of fees, while mid-sized buy-outs generated the best returns of 16.65% over the long term and outperformed the MSCI Europe index by the widest margin.

European venture capital returned a net IRR of 16.79% over a 10-year horizon, performing on a par with North American funds over the same period, while the European growth capital private equity segment performed consistently strongly, generating an annualized IRR of 13.28%, outperforming the MSCI Europe which returned 7.32% over the same timescale.