The global economic downturn has hit megabuyout funds, which provided the worst returns among buyout funds for the one-year (-31.4%) and three-year (-3.1%) periods ended June 30, according to a Preqin report.
Large buyout funds were the second-worst performers, returning -24.4% and an annualized 9.9%, respectively, for the one- and three-year periods.
Small funds are those holding $500 million or less; midmarket funds, $50 million to $1.5 billion; large funds, $1.5 billion to $4.5 billion; and megafunds, more than $4.5 billion.
The best performers were small buyout funds — at -12.9% and 18.6%, respectively, while midmarket buyout funds returned -16.7% and 12.2%, respectively.
For the five-year period ended June 30, however, small buyout funds had the worst return, with an annualized 21.5%, and midmarket funds were the best, at 29.3%. Megabuyouts returned 23.9% for that period and large funds, 23.7%.
The report also shows a narrowing between equity capital being spent by buyout firms and the total deal value, which suggests a drop in the amount of leverage used to finance deals.
“If you look at 2006 and 2007, the data suggest (larger) firms were using a lot of leverage,” said Preqin spokesman Tim Friedman, noting that credit markets have dried up, making it harder to finance deals.
He said larger firms are not only struggling to find financing for new deals, but they also are having trouble refinancing existing deals.