Report: Returns Tighten for Private Equity


June 12, 2017

The latest Global Private Equity Barometer shows private equity returns to have decreased from last year. Coller Capital’s reporting also shows private equity investors believe fintech opportunities will continue to increase in the future. However, investors don’t seem impressed by blockchain technology.


Returns are diminishing


According to the report, 62% of surveyed private equity investors earned a net annual return of 11% and 15% from inception in 2017. If you compare those returns to the earnings investors made during the same period last year, the figure is down by 67%.


Furthermore, the number of investors who managed to report higher returns also declined from last year. Around 18% of investors stated they received an annual inception private equity return of 16% or more, according to the latest report. In 2016, the same figure was 20%.


The survey was taken between March and April this year and it interviewed over 110 private equity investors.


Firms go shopping to boost returns


Since returns are dropping, private equity firms are looking to spice up their strategies in order to boost returns. Pensions & Investments reported how the practice of “buy and build” is gaining popularity – private equity firms are looking to acquire firms in order to enhance their portfolios.


The article pointed out recent examples of the practice, with major private equity firms like Blue Point Capital Partners getting involved with the practice. David Fann, president and CEO of private equity consulting firm TorreyCove Capital Partners, told Pensions & Investments that, “Certainly it’s been around as a strategy but this is an accelerating trend – what’s different now is almost everyone is doing it.”


The shopping trend is driven, not just by the lowering returns, but also the high amount of dry powder firms are sitting on. According to Preqin’s data, private equity funds held $842 billion in dry powder as of March 31.


Trust in fintech opportunities


Private equity investors also showed faith in the growing market of fintech. 65% of respondents believe fintech investment opportunities will continue to grow in the near future. Even those a little less confident in the sector thought that while fintech might have already reached its peak, it would remain a significant opportunity for the investors. The group made up 31% of the respondents. Only 4% of surveyed private equity investors felt the sector would start to diminish in terms of the opportunities it offers.


Perhaps the most interesting finding in terms of investor thoughts surrounded blockchain technology. While the technology continues to grow and enter the financial services sector, private equity investors are not impressed. In the Coller Capital report, 76% of private equity investors thought the blockchain technology won’t be an important development for private equity investment.

Considering the appetite for higher returns, the amount of dry powder firms are sitting on and the trust in opportunities in the fintech sector, the summer might witness a number of big investments in the sector.

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