Software Selloff Drags Private Equity Buyout Returns Negative in Q1
The technology-heavy private equity market felt the pain of this year’s software selloff, as new benchmark data from HarbourVest Partners showed buyout returns turning negative in the first quarter, driven almost entirely by declines in Information Technology holdings.
The HarbourVest Private Equity Global Buyout Benchmark returned -1.6% for the quarter ended March 31, according to data released by the private markets investment firm. Information Technology, the benchmark’s largest sector at roughly 29% of current value, returned -5.0% for the quarter, while most other sectors posted more modest declines of 2% or less. Industrials was the lone sector to post a positive return, at 0.7%.
Within Information Technology, Software & Services took the brunt of the hit, falling 6.4% for the quarter and slipping to a 0.1% trailing one-year return, even as it remained the top-performing industry group over 10 years with a 21.9% annualized return.
“The first quarter returns predominantly tell a software story, since the Software & Services industry comprises the majority of the benchmark’s largest sector – Information Technology,” said Sofia Gertsberg, Managing Director and head of quantitative investment science at HarbourVest.
The effect was most pronounced in the US, where Information Technology makes up 32% of the benchmark and trailing one-year returns turned negative at -2.2%. The sector remained positive outside the US, returning 14.6% in Global ex-US buyouts and 11.1% in Europe.
Scott Voss, HarbourVest’s chief market strategist, said the quarter’s headline number obscures a more complicated picture. “Software fell while hardware rose, and US technology diverged sharply from markets outside the US,” he said, adding that broad sector labels “can conceal more than they reveal.”
Financials led US one-year returns at 15.8%, while Communication Services outperformed outside the US, returning 15.4% in Global ex-US and 14.8% in Europe.
The benchmark draws on more than 66,000 underlying private equity and venture transactions.