Private Equity Intelligence, a research house, says data on funds started in tough economic years of 1991 and 2001 show these funds experienced some of the strongest returns over the past 16 years that the research firm had measured.

Funds of a 1991 vintage have delivered total returns of about 2.7 times initial cash invested. Funds started in the boom-time of 1999 achieved a return of 1.6 times, while funds set up in 2001 clocked up a return of just over 2 times. However, it should be noted that these figures are averages and can contain wide variations in performances of individual funds.

Private equity fund-raising has slowed down markedly since the credit crunch as investors have shied away from the heavy buyout deals that had been possible during the M&A boom earlier in the decade when debt financing was cheap and there was a strong market for initial public offerings. And private equity investing comes with relatively high fees of a 2 per cent annual charge plus performance fees typically of 20 per cent.

But Private Equity Intelligence reckons that the dark clouds of the economic downturn also come with a silver lining for investors: “Private equity has historically seen some of its best returns from fund vintages that were invested in recession and/or bear markets.”

“Based on this historical precedent, the prospects for 2007 to 2009 vintage funds look promising,” the research organisation said.

“While leading have rightly been steeling their limited partners to expect little in the way of distributions in the immediate future, the future long term prospects are encouraging.

Meanwhile, funds on the road are targeting $317 billion of funds; for funds that are now closed this year, they have about $130 billion of such “dry powder”.

With borrowing costs rising, such funds may use a higher proportion of their cash to finance investments than in the past, the research organisation said. Previously, funds typically financed a high proportion of investments via debt, an approach that worked well until interest rates began to rise.

“Current and prospective dry powder available to buyout funds is between two and three times as much as the total amount of equity invested in the peak years of 2006 and 2007,” the report said.

The report said there are currently 282 buyout private equity funds on the road. The biggest is Blackstone Capital Partners VI, with a target of $20 billion.