State Street: Mega-funds’ long-term IRRs top peers

Buyout funds’ long-term net internal rates of return average 15.9 percent, according to fourth quarter data released by the State Street Private Equity Index. The results, as of 31 December 2007, represent an increase from the 15 percent averaged in the third quarter.

“Mega buyout funds continue to deliver higher since-inception IRRs as a whole than their smaller peers and other segments, such as venture capital,” Gerard Labonte, State Street vice president, said in a statement. “Investors with access to the largest buyout managers have fared quite well against the rest of the asset class and in comparison to public market equivalents.”

State Street found that for the fourth quarter, long term IRRs for venture funds averaged 12.8 percent, while “other” funds averaged 13.8 percent.

Quarter-over-quarter rates of return showed a slight increase, with the fourth quarter’s overall index return of 3.18 percent, up from 2.26 percent the previous quarter but down significantly from the fourth quarter 2006’s return of 10.89 percent. This reflects “challenging conditions experienced during the latter part of 2007”, State Street said.