Post Crisis Small Buyout Funds Generating Superior Returns

The October 2013 edition of the Prequin Private Equity Spotlight, published by, contains a useful article by Emma Underwood that highlights how the Preqin Private Equity Quarterly Index can be used as a measure of performance of the PE industry.

The Preqin – private equity quarterly index

The Preqin – Private Equity Quarterly Index is calculated on a quarterly basis using data from Preqin’s Performance Analyst. The models use quarterly cash flow transactions and NAVs reported for over 5,100 individual private equity partnerships that have raised aggregate capital worth over $3.4tn.

Actual returns earned over time by private equity investors on money invested in Private Equity partnerships are thus captured by the index.

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Analysis friendly buyout funds

The index is useful for carrying out different kinds of analyses over varying periods of time by resetting the base level. The flexibility of the model is illustrated in the article by analyzing the returns generated by different sizes of buyout funds over two different time frames.

Case 1: Buyout Fund Returns With 31 December 2000 As The Base (100)

Preqin Private buyout funds equity base-case-2000

We observe that when we calculate category-wise returns by setting the base as 100 on December 31, 2000, the Mega-sized buyout funds were clearly the leader of the pack until 2008 when the great financial crisis hit. After a temporary blip, the Mega funds were back in pole position by the middle of 2011, fell a bit and thereafter took the lead.

Case 2: Buyout Fund Returns With 31 March 2008 As The Base (100)

Preqin Private buyout funds equity  base-case-2008

When we rebase the indices to 100 as on March 31, 2008, the picture of category-wise returns generated changes dramatically.

It is clear that post 2008, the mid-market and small buyout sized funds have generated superior returns, possibly because the mega funds were impacted the hardest due to their leveraging and the liquidity crunch. During this period the best returns were generated by the Mid-market buyout funds whereas the Mega buyouts were at the bottom of the heap.

Therefore, by rebasing the indices to different points in time, it is possible to better analyze the performance of the different fund sizes over selected time frames.