An Attempt to Analyze Older Buyout Funds (Vintage Years 2000-2007), So As to Diminish the Impact of General Partners (GPs) Setting Residual Values in Rate of Return Calculations

Abstract

We conduct a study dedicated principally to older leveraged buyout funds that have had the opportunity for multiple portfolio company liquidations, or have been fully liquidated. Examining 186 funds in the vintage years from 2000 to 2007 with complete cash flow data from the Preqin database, we find that 61% beat the S&P 500 plus 3% ( a common benchmark), and 39% did not. Funds originated during the boom years (2005 to 2007) are less successful, with 41 % beating the benchmark to date, and 59% falling short. Thus, we find that funds from the earlier vintage years have better performance relative to broad equity market benchmarks than the later years. The later vintage year funds have larger RVPIs than the early vintage year funds, most of which had been fully liquidated. In addition, we find that moderately-liquidated funds tend to have worse results than mostly-liquidated funds. Lastly, in examining a group of fund families with three or more funds, we find no strong evidence of consistency.