The Italian private equity and venture capital market, in terms of aggregate gross IRR, had an average performance of 18.7 percent in 2022, just below the 19.2 percent in 2021 and in line with the trend of past years, if we exclude the record high of 32.1 percent achieved in 2020 due to a few mega-deals, which had significantly impacted the overall performance (see here a previous article by BeBeez). In 2019, the figure had been 21.3 percent (see here a previous article by BeBeez). This was calculated by KPMG in its annual report in collaboration with AIFI, the Italian Association for Private Equity, venture capital and Private Debt, and just published (see KPMG report here), from which it also emerges, however, that the best performers, that is, those in the highest quartile, were able to bring home returns of 37.9 percent per year in 2022 and even 43.4 percent in 2021.
The figure relates to the so-called IRR from Inception, which measures annual performance related only to divestments made in a given year (in this case 54 divestments made in 2022 by 32 operators versus 50 divestments made in 2021 by 28 operators) and related to the period in which the funds maintained their investments in the portfolio, regardless of when the initial investment was made. In terms of cash multiples, however, the 2022 average was 2.5x the invested capital, as in 2021, still below the 2020 figure (3.2x).
Confirming the trend observed in previous years, KPMG then calculates that the highest returns are seen in MBO/MBI divestment of companies (20.6 percent) and development deals (12.0 percent).However, in 2022, early stage companies, whose returns are typically characterized by high volatility, also recorded a very good IRR (19.7% vs. 4% in 2021).
In reality, however, the most complete picture of how the private equity and venture capital investment funds are doing in Italy is obtained if one analyzes the so-called Gross Pooled IRR by horizon returns, which indicate the performance relative to the investments made by the funds over the relevant time horizon (1, 3, 5 and 10 years, but also shorter periods such as a single quarter), regardless of whether these were subsequently disinvested or are still in the portfolio.
From this point of view, the figure calculated by KPMG and AIFI points to 11.1 percent at 3 years, 11.6 percent at 5 years, and a richer 18.5 percent for 10 years as for the end of 2022, which compares with 12.7 percent, 11 percent, and 16.1 percent calculated at the end of 2021 and with much leaner returns in 2020: 5.6 percent, 8.4 percent, and 15 percent, respectively (see KPMG’s 2021 Report here).
All this comes out with an implied cash multiple corresponding at the end of 2022 to 1x the invested capital on the one-year horizon, 1.1x for 3 years, 1.2x for 5 years, and 1.4x for 10 years. The latter figures are identical to those calculated at the end of 2021, with the only difference on the one-year horizon, where the multiple was 1.1x.
From the point of view of aggregate IRR by horizon, the performance of Italian private equity funds leaves something to be desired on the short and medium horizon compared to their international and European peers, while they give more satisfaction on a long-term horizon. Indeed, the latest data from PitchBook in its latest Global PitchBook Benchmarks updated to the end of 2022 and published in recent days show that private equity funds globally at the end of 2022 were yielding an average of 20.65 percent per year over a 3-year horizon, 17.77 percent over 5 years and 16.26 percent over 10 years while if one focuses only on European private equity funds, returns vary slightly (19.38 percent over 3 years, 18.10 percent over 5 years and 14.61 percent over 10 years) (see here a previous article by BeBeez).
These are still much lower yields than those indicated at the end of 2021, as reflected in the Global PitchBook Benchmarks report updated at the end of 2021. Historically, in fact, the performance of private equity funds had peaked in 2021.
However, due to deteriorating macroeconomic conditions, the performance of private equity funds declined in 2022, such that one-year-to-date performance is negative, namely -1.16 percent globally and -0.58 percent at the European level. Things are somewhat improving, however, as the last two quarters are instead positive with 2.33% in Q4 2022 and 1.27% in Q1 2023 globally (and 6.2% and 3.8% in Europe, respectively).
