NVP: Growing steadily in a turbulent world
This column was originally written in Dutch. This is an English translation.
By Felix Zwart, Director of Research, Dutch Association of Private Equity Firms (NVP)
Last week saw the publication of the annual Dutch Private Equity Report by Forvis Mazars. The report paints a picture of a private equity sector that, in uncertain times, is consciously choosing to focus on what it can control.
Dutch private equity firms take majority stakes, play an active role in shaping strategy and operations, and deliberately keep initial investment levels low. Dutch firms adopt this approach in a market where 66% of Dutch funds view geopolitical uncertainty as the greatest external threat, compared with 57% globally.
For institutional investors, this is a relevant context. The lower IRR highlighted in the report — only 36% of Dutch exits achieve a return of 20% or higher, compared to 50% globally — does require some explanation. Part of the difference is structural: lower leverage depresses the measured return, and the longer lead time of operational improvement programmes shifts value creation to the exit phase. This is also what the Forvis Mazars figures show: portfolios that are still lagging after three years, but are almost in balance at exit.
Furthermore, the Forvis Mazars report looks at the returns of individual deals, not at fund performance as a whole. Invest Europe’s Performance Benchmark Report 2024 offers an important additional insight here, which further nuances the lower IRR of Dutch firms. European buyout funds, and therefore Dutch ones too, delivered an IRR of 14.68% over their entire lifespan. Mid-sized European buyout funds perform even more strongly, with an IRR of over 17%. This means that, on an IRR basis, European funds outperform their North American counterparts, which show an overall IRR of 13.38% in euros. An important detail, however, is that US funds deliver higher absolute multiples (TVPI) thanks to greater use of leverage and faster exit cycles: 1.82 in the US versus 1.7 in Europe in euros. But this ultimately results in a different risk profile.
It is precisely this risk profile that makes the active ownership model of Dutch PE firms so valuable in the current market conditions. In an environment of persistent interest rate uncertainty, geopolitical fragmentation and higher financing costs, it is not the most highly leveraged transactions that prove most resilient, but the investments where the owner is actually an active shareholder. Leadership selection, rigorous KPI structures, targeted add-on strategies: Dutch fund managers deploy these tools more frequently and consistently than their international peers.
For pension funds and insurers seeking stable returns with manageable risk, that is precisely the story. Not the short-term IRR, but the consistency and low volatility of returns over longer horizons. The discipline described in the Forvis Mazars report is therefore not a weakness. It is an advantage, particularly now.
