Technology buyout funds have consistently been top performers in private equity, maintaining strong investor interest and achieving record fundraising levels over the past decade due to expectations of continued outperformance, excluding venture capital, said leading alternative assets data provider Preqin on Tuesday 15 October 2024. The analysis found that Europe-focused PE tech buyouts achieved a ten-year average return of 30%, outperforming their North American counterparts, which posted a return of 25%. These findings were part of a of the PE landscape as of January 2024.
As of January 2024, there were 10,533 funds in the market, including a record high of 4,385 PE tech funds, noted Preqin. However, the total targeted capital for these funds had decreased to $710.2bn, down from $921.4bn in January 2023. This decline reflected a persistently challenging fundraising environment, with the average targeted PE tech fund size falling to $162m, significantly below the ten-year average of $254m.
The report also noted a resurgence in venture capital tech deals, which returned to pre-pandemic levels. In 2023, there were 9,057 deals with a combined value of $124bn, a stark contrast to 2021’s figures, which showed 14,146 deals valued at $280.7bn. Victoria Chernykh, associate vice president of research insights at Preqin, stated that tech buyout funds remained among the top-performing PE funds and continued to attract investor interest despite tougher market conditions.
The report highlighted a significant shift in focus towards Europe-focused PE tech funds, which raised more capital than their North American counterparts in only four of the last 25 quarters.
However, the amount raised in Europe in the first quarter of 2024 was double that of North America, indicating a growing attraction to European tech due to higher returns. Software deal-making was identified as a key driver of tech buyouts, while the VC tech deals market was adjusting back to pre-pandemic norms.
Preqin emphasised the material performance divergence between top- and bottom-performing quartiles within the private equity space. The internal rate of return (IRR) for top-quartile buyout tech funds appeared more defensive, with IRR levels experiencing smaller declines compared to lower-quartile funds. This trend could be attributed to the superior marketability of high-quality technology assets, particularly those from established companies with existing revenue and profit streams, even during periods of heightened asset prices, such as in 2021.
Among the ten largest global tech funds currently raising capital, three are Europe-focused funds managed by Europe-based firms–CVC, EQT and Permira–while one fund targets Asia and six focus on North America. Funds targeting the Asia-Pacific region accounted for just 7.5% of all global PE tech fundraising in the first quarter of 2024, with the rest of the world contributing an even smaller proportion of 3.1%. North American-targeted funds represented 27% of the total aggregate funds raised across the four regions in early 2024.
