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Returns fall short of LP expectations

Investors are experiencing a distinct mismatch between their expected private equity returns and the actual returns they end up with, claims new research from bfinance.

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Investors are experiencing a distinct mismatch between their expected private equity returns and the actual returns they end up with, claims new research from bfinance. 

Responses to a survey of institutional investors highlight a significant difference between expected returns from private equity strategies and the reality of realised net of fees returns in their portfolio. 

Ninety-three per cent of institutions set their private equity funds a performance target of over ten per cent, yet less than half generated an actual net IRR above that level. 

However, there is a distinct difference between expected and actual returns between different private equity strategies. 

For example, 74 per cent of LPs expected debt funds to return ten per cent net of fees and nearly 70 per cent achieved this. 

At the other end of the scale, venture capital has disappointed the most. Eighty-seven per cent of LPs surveyed expected more than ten per cent net IRR, but just 44 per cent saw such returns.

Expected and actual returns for buyouts were less discordant, with 89 per cent of investors expecting ten per cent net returns or more and 73 per cent achieving them.