the q2 2016 preqin quarterly update private equity

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  • Plus, Special Guest Contributors:Vickers Venture Partners

    alternative assets. intelligent data.

    Content includes...

    FundraisingPrivate equity fundraising

    tops $100bn in Q2.

    Investors in Private EquityBuyout funds remain the

    most targeted strategy

    among investors.

    Buyout DealsPrivate equity-backed

    buyout deal flow rebounds

    in Q2.

    Venture Capital DealsValue of venture capital

    deals in Q2 was the second

    highest on record.

    Fund PerformanceCapital distributed by

    private equity funds

    continues to outstrip the

    amount called up.

    The Q2 2016

    Preqin Quarterly Update

    Private Equity Insight on the quarter from the leading provider of alternative assets data

  • The Preqin Quarterly Update: Private Equity, Q2 2016

    Download the data pack at:www.preqin.com/quarterlyupdate

    2 2016 Preqin Ltd. / www.preqin.com

    All rights reserved. The entire contents of Preqin Quarterly Update: Private Equity, Q2 2016 are the Copyright of Preqin Ltd. No part of this publication or any information contained in it may be copied, transmitted by any electronic means, or stored in any electronic or other data storage medium, or printed or published in any document, report or publication, without the express prior written approval of Preqin Ltd. The information presented in Preqin Quarterly Update: Private Equity, Q2 2016 is for information purposes only and does not constitute and should not be construed as a solicitation or other offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or as advice of any nature whatsoever. If the reader seeks advice rather than information then he should seek an independent fi nancial advisor and hereby agrees that he will not hold Preqin Ltd. responsible in law or equity for any decisions of whatever nature the reader makes or refrains from making following its use of Preqin Quarterly Update: Private Equity, Q2 2016.

    While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to confi rm the accuracy of such information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Preqin Quarterly Update: Private Equity, Q2 2016 are accurate, reliable, up-to-date or complete.

    Although every reasonable effort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or omissions within Preqin Quarterly Update: Private Equity, Q2 2016 or for any expense or other loss alleged to have arisen in any way with a readers use of this publication.

    Foreword - Christopher Elvin, Preqin

    Following reduced activity in Q1 2016, private equity* fundraising recovered in the second quarter, with funds closed securing $101bn only the fourth quarter since Q1 2008 that fundraising has exceeded $100bn. This was achieved despite only 180 funds reaching a fi nal close, compared with a peak of 334 in Q4 2013 further evidence of the concentration of investor capital among a smaller group of larger funds. Fundraising remains competitive with a record 1,720 funds in market, although the amount of capital ($447bn) these funds are seeking, is down from $476bn at the start of last quarter.

    Due to private equity funds ongoing success in fundraising, industry dry powder continues to grow, reaching a record $818bn in June 2016. Despite the large amounts of capital available to invest and concerns over pricing, deal activity has recovered from the dip experienced in the fi rst quarter of the year, which has allowed fund managers to put some of their new capital to work. The aggregate value of buyout deals was higher in Q2 at $89bn, compared with $50bn in Q1; venture capital deal value reached $40bn, the second highest quarterly aggregate deal value on record.

    Institutional investors will continue to invest in the asset class over the next year, although 47% of those planning new investments in the next 12 months intend to invest less than $50mn. Nevertheless, there remains a signifi cant proportion (16%) that plan to make substantial investments of more than $300mn, which should be encouraging for fund managers looking to raise capital in the near future.

    The Secret to Consistent Top Quartile Performance Vickers Venture Partners 3

    Fundraising in Q2 2016 5

    Funds in Market 6

    Institutional Investors in Private Equity 7

    Buyout Deals and Exits 8

    Venture Capital Deals 10

    Fund Performance and Dry Powder 11

    Contents

    Data Source:

    Private Equity Online is Preqins fl agship online private equity information resource and encompasses all of Preqins private equity databases. With unrivalled data and intelligence, Private Equity Online provides a 360 transparent view of all aspects of the asset class, including fund terms and conditions, fundraising, fund managers, institutional investors, fund performance, deals and exits, service providers and more.

    For more information, or to arrange a demo, please visit: www.preqin.com/privateequity

    *Private Equity includes Buyout, Venture Capital, Growth, Turnaround, Other Private Equity, Private Equity Secondaries and Private Equity Funds of Funds. It

    excludes Real Estate, Infrastructure, Private Debt and Natural Resources.

  • The Preqin Quarterly Update: Private Equity, Q2 2016

    Download the data pack at:www.preqin.com/quarterlyupdate

    3 2016 Preqin Ltd. / www.preqin.com

    The Secret to Consistent Top Quartile Performance

    - Dr. Finian Tan, Chairman,Vickers Venture Partners

    Do you continue to see opportunities for venture capital firms (VCs) to deliver good performance given the risks associated with venture capital today? There are three main things all VCs need to do to achieve good results. Firstly, they need good deal flow, secondly they need a good filter and thirdly, they need to be able to add value to facilitate and nurture their companies to grow. To ascertain if there are still opportunities for VCs, I guess we need to ask and answer two questions:

    1) Are there macro reasons why innovations will no longer deliver outsized returns?2) Are too many VCs chasing after too few deals? I think the answer is no to both, since innovators like Uber, Palantir, Xiaomi and our own portfolio company, Samumed, can still disrupt and become world-beaters with outsized returns for their investors. They are all decacorns (valued at more than $10bn) and are still growing at an extremely fast rate. This means that gems can still be found in many different industries all over the world. They are by no means easy finds, but this is where the deal flow, filters, contacts and prior knowledge come into play.

    China is no longer as nascent in its growth phase as when I first invested in Baidu in 2000 and neither is mobile internet. Many of the low-hanging fruits are gone. But there are still many to be found in the more obscure places and perceived riskier sectors, and in very creative people in the less obscure places. For example, one of our companies called Bolome invented the video e-commerce market in China and grew seven times in value in seven months. Another one of our companies, Kuyun, dominates the interactive TV market in China and is now valued at 10 times our entry price. This is the beauty and attraction of venture capital. The home runs give such high returns that, even after compensating for the write-offs, the overall returns can still outperform all other asset classes. What are the key drivers of consistently strong performance in VC? We aim to achieve top-quartile performance for all our funds. Despite achieving the fifth best VC in the world, with three top-quartile funds and one second-quartile fund, we are still as motivated as we were on day one, 11 years ago, to perform at these levels. Our formula is working, which reinforces our conviction with our current strategy. We, of course, will continue to tweak and improve on our methodology as we strive to remain ahead of the curve.

    As mentioned above, a good VC must do all three things well: good deal flow, a good filter and the ability to add value.

    If a firm is not good enough to sit back and receive great deals, they need to have a way to trawl for great deals. The filter comes from ability, experience and working together as a team. Having the ability and networks to help the companies grow will result in quicker exits, which will enhance their reputation and begin the virtuous cycle of good firms attracting the best deals. At Vickers, we are not yet so well known that we can just sit back and get the first shot at all the good deals. We work hard to trawl for global deals in the perceived riskier regions such as China, Southeast Asia and India and perceived riskier sectors such as global life sciences with a focus on regenerative medicine. I say perceived because, although the risks may be higher as they are at the frontiers of their respective areas, the potential for outsized returns far outweighs the risks, resulting in greater risk-reward ratios. The filter must then be fine enough to ensure we catch the small fishes that will grow to monsters and yet not so fine that it catches all the junk as well. Our failure versus success rates are around 28% and 72% respectively, with a home run rate of 36%. This, together with an outsized return from Samumed, has mainly powered the performance of our Fund 4 (2012 vintage) to a net return of over 5x, and is the best performing fund of all vintages since 2008. The IPO market has been tepid for the last year as your primary exit strategy, does this make you look at other exit routes more? VCs generally invest early, so the IPO market is actually not the