Private equity returns seem to be stabilising in recent quarters, settling in the 9% to 11% range, according to PitchBook.
In Q2 2024, managers reported a median gross return from the PE funds and strategies they manage of 1.9% for Q2 2024 and 7.9% on a trailing 12-month (TTM) basis, both of which are sequential declines.
In its Q2 2024 US Public PE and GP Deal Roundup, PitchBook reports PE firm KKR again leads the pack with a gross return of 18.1% in its traditional PE strategy for the trailing 12-month period.
KKR’s PE fund performance has been robust in recent quarters, including a quarterly return above 4% in four of the past five quarters. PitchBook notes the firm’s one-year PE return remains ahead of Blackstone’s 11.3% return for its corporate PE strategy during the same period.
“Apollo returns dropped in Q2 to 1.6% after posting four consecutive quarters above 2%. Apollo’s growth strategies, which include its PE buyout and its lend-for-control strategy, have nearly reached double-digit territory, reporting a 9.7% return for the TTM period,” the US Public PE and GP Deal Roundup adds.
“While Blue Owl does not directly manage a PE strategy, its GP Strategic Capital (GPSC) funds offer indirect exposure. Approximately half of the GP stakes it has acquired since inception are PE managers.
“Blue Owl reported inception-to-date gross returns on Funds II, IV, and V of 30.2%, 62.8%, and 30%, respectively, and net returns of 23.5%, 41%, and 12.3%, respectively, as of June 30, 2024.
“Rounding out the group were TPG, Carlyle, and Ares, with one-year gross returns on PE strategies of 6.2%, 5%, and 0.5%, respectively. Carlyle was the only firm of the three that improved from its one-year returns reported at the end of Q1 2024. Please note that not all these strategies may be comparable.”
Returns continue to trail public equities by a wide margin, with PitchBook reporting the S&P 500 recording a 4.3% return for the quarter and a 24.6% return for the TTM period.
Private equity firms are also tipped to be very active in the market in the coming year, both as vendor and buyer, according to Ansarada’s 2024-25 M&A outlook for Australia and New Zealand.
This sector has been relatively lethargic in the past few years while waiting for more certainty about the direction that interest rates will take, listed software-as-a-service platform Ansarada (ASX:AND) reports.
“For many, this ‘wait and see’ approach has reached the limits of its usefulness, and deals need to be made. In some cases, these will be acquisitions to drive growth goals, but many companies will be looking to make exits as they close out their funds,” Ansarada’s 2024-25 M&A outlook for ANZ notes.
“These sales have been in the pipeline for some time now and should be in good shape as they enter the market over the next 12 months.”
Tim Miles, founder and Principal at Miles Advisory Partners, says what’s driving M&A activity right now is the volume of deals involving private equity, whether that’s PE firms exiting their investment portfolio or firms investing in new businesses.
“And, as a business, private equity firms are employed to put other people’s money to work and to realise the money they’ve put to work. They can’t sit on their hands forever,” Miles says.
“When these activity troughs happen, you tend to come out the other side and find private equity. If they haven’t done anything for 12 to 18 months, they tend to get quite busy finding deals to do.”
Miles explains that Australia has lasted for roughly 30 years without a recession, and has had very strong and consistent business performance over that period.
“When something like the pandemic happens, businesses get disrupted. Whether that’s actually driving peaks or troughs in the business performance depends on the sector and the business,” he says.
“Off the back of the pandemic, we found you had to spend a lot of time, effort, and energy to understand the underlying performance.”
As such, private equity remains the top-performing asset class on a 10-year and 15-year basis.
However, PitchBook notes in its most recent Global Fund Performance Report, that outperformance margin has been declining, and the distribution component of returns remains well below historical levels.
“The same can be seen among public players, with realisations running below historical levels despite its recent uptick.”
Meanwhile, as PE returns attempt to regain lost ground, private credit returns continue to fly high, according to PitchBook.
“Credit returns reported by these same managers remained significantly higher than their PE strategies in almost every instance, with KKR being the exception,” PitchBook reports.
“The top seven US-listed alternative managers with credit strategies posted a median quarterly and TTM gross return of 3% and 16.4%, respectively, for the period ended Q2 2024; the latter figure is more than double the 7.9% median PE gross return for the TTM period.
“Not all these private credit strategies may be comparable, with some taking on more risk and leverage than others, but the ability to generate equity-like returns in recent quarters with much lower volatility has validated the push these managers have made to gain such exposure to the asset class.”
Write to Adam Orlando at Mining.com.au
Images: iStock & PitchBook