According to PitchBook‘s Q1 2014 Global PE & VC Benchmarking & Fund Performance report, one-year horizon IRR figures for the largest vehicles saw the biggest gains from 1Q 2013, as PE funds of $1 billion or more experienced a jump from 10.4% to 13.6%. VC funds of more than $500 million generated an 8.6% one-year horizon IRR through 2Q 2013 after posting 5.1% the prior quarter. All indications point to continuing improvement in fund performance through 3Q and 4Q 2013, with the number of exits and capital exited, particularly on the PE side, continuing their growth throughout 2013. However, the story on the VC side is not that optimistic.
From this figure, we could see VC funds lag behind all the other asset classes. But the report also indicates that “while the venture capital asset class has consistently underperformed PE over the last decade, things have been improving. Skyrocketing valuations have no doubt played a role in the number and value of exits expanding, thus increasing distributions back to limited partners, in addition to building up the RVPI with new and existing investments that have yet to be liquidated. This trend should continue over the next few quarters.”
Furthermore, PitchBook states that VC firms distributed $10.3 billion to LPs through the first two quarters of 2013 and returned $34 billion in 2012, which was the first year of net positive cash flows to LPs from the VC asset class since 2003. 2013 is on pace to also generate positive cash flows, albeit at a lower level. This might be due to the increasing popularity of IPOs as an exit strategy for VC firms in 2013. And from this point of view, we may yet still have a chance to see more distributions to LPs grow in the following quarters.
To read the report, please visit here.