SLUGGISH stock markets and lower levels of strategic improvement have driven private equity returns to their lowest levels since the financial crisis, a study shows.
Exits by buyout groups – which involve the sale of companies owned by private equity outfits – netted selling firms two times their original equity investment between 2010 and 2013, according to a study by EY, formerly Ernst & Young.
This was lower than the 3.3 times return generated on average between 2005 and 2007 and below the 2.1 times return between 2008 and 2009.
The data reveals that private equity operational and strategic improvement – long considered the industry’s strong suit – was the main driver behind returns over all years. Stock markets and additional leverage also contributed to returns.
“Our large data set shows the positive effect of PE ownership translating into superior financial returns for investors, even after we have discounted additional leverage and stock market performance,” EY’s Harry Nicholson said.