Private equity generates better returns

Recent studies show that private equity investments deliver better returns over the medium and long term than buying stocks. This further increases the attractiveness of this form of investment - more and more companies are striving to enter the market and new funds are also continuously being launched.

PE achieves attractive returns

The study is waiting with many current figures and statistics "The Performance of European Private Equity Benchmark Report 2019" from the European interest group Invest Europe. The main conclusion: European leverage buy-out funds have achieved an average annual net return (IRR) of 15.0 percent since the end of 2009. This is well above the performance of the MSCI Europe (index for the performance of the European stock market) with a value of 5.84 percent. The extensive study by Invest Europe is not public, but only available to members of the association - the key statements can be found in the associated press release. A recent investigation "Private equity as an asset class" of the Federal Association of German Capital Investment Companies (BVK) and the Center for Corporate Transactions and Private Equity (CCTPE) of the HHL Leipzig Graduate School of Management with the support of KfW Capital provides values ​​similar to the study by the European association. When asked about the expected performance of their investments, the investment managers give a minimum return of nine to ten percent.

DBAG is trendy

The results of the studies coincide with the performance of the portfolio companies in the DBAG funds. The net asset value of the private equity investments of Deutsche Beteiligungs AG - a comparable key figure - rose by around 13 percent annually between the end of 2014 (this figure has been available since) and the end of 2019, i.e. the reference date of the Invest Europe study, if the distributed dividends are taken into account. The net asset value roughly corresponds to the equity.

According to the BVK study, more than two thirds of the investors surveyed are planning to expand their private equity investments in the next two years. The remaining 30 percent or more want to at least maintain the level. Almost 80 percent of the investors surveyed have increased their PE activities since 2016. These values ​​show that PE investments remain attractive.

Almost 80 percent of institutional investors consider investments to be important in the future, particularly in the small / midcap buy-out sectors. This is proof of the correctness of the DBAG strategy with a focus on investments in medium-sized companies. According to the BVK study, the average share of PE investments in the overall portfolio of German investors is around seven percent. This puts them below the global average of ten percent for equity capital. German family offices have placed around 13 percent of their investments in PE funds.

Experience and track record as investment criteria

Institutional investors have clear requirements for private equity funds: for more than 80 percent of the investors in the BVK study, experience and the quality of management are decisive criteria. A successful management track record is almost as important when choosing a fund. Experience and track record are also essential factors for DBAG when selecting members for its investment team.

European funds could keep up with the USA

In comparison with buy-out funds from the USA, the European companies do well in terms of performance. According to the Invest Europe study, European funds are more than two percentage points ahead with a net return of 15 percent. Compared to the stock market, the difference is much greater: With European buy-out funds the said 15 percent could be earned annually, with European stocks (measured by the MSCI Europe) only 5.84 percent. This is then reflected in a correspondingly higher multiple of the invested capital, namely 1.67 (buy-out funds) to 1.22 (European stocks), assuming comparable cash flows. The study also shows an attractive risk profile, as 85 percent of European funds have increased their investors' money.