Given the state of the economy, there aren't many silver linings for private capital firms -- or the rest of Wall Street for that matter -- to crow about. However, venture capitalists may have found something to brag about when panhandling potential limited partners for new commitments because according to a new report venture capital firms outperformed their buyout counterparts in the third quarter of 2008 -- a rare event in finance.
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For only the third time in history, the return on investment of
venture capital firms performed better than buyout firms, according to
a study by Cambridge Associates LLC. However, both lost money, of
course:
- Venture Capital: -2.8%
- Buyout firms: -8%.
The Wall Street Journal's Private Equity Beat
blog notes that this is only the third time since 2005 that buyout
quarterly returns trailed venture capital -- Cambridge Associates has
tracked both PE and VC returns since 1986. PE Beat's Laura Kreutzer
wrote of the news:
"It was the first time since the third quarter of
2007 and only the
second time since 2005 began that buyout firms' quarterly returns have
trailed those of their venture counterparts, as the buyout industry
began to feel the impact of a weakening economy, declining public
markets and mark to market accounting rules required by Financial
Accounting Standards Board Rule 157."
However, before VC firms crow too much about Cambridge's study, Kreutzer also notes:
"Buyout professionals are quick to point out that
quarterly returns
don't carry much meaning given that theirs are long-term investments.
The longer-term Cambridge Associates data shows that private equity has
generated 13.3%, 19% and 11.8% returns over the past three years, five
years and 10 years, respectively."
Still for VCs, who have watched a growing number of startups join the deadpool in this economy, any silver lining is worth celebrating. - Matthew Wurtzel
See story from PE Beat
See related Q&A with Roger Ehrenberg about deadpools from Dealscape
See PEHub post
