Private Equity in Developed Markets Outperformed Emerging Market PE Investments in Q2 2015
Distributions to Limited Partners were up almost 50% over Q1 in Cambridge Associates PE and VC Emerging Markets Index
BOSTON (February 1, 2016) – A stronger euro helped boost second quarter 2015 returns as measured in US dollars in private equity and venture capital funds investing primarily outside the US. Funds focusing on ex US developed markets outperformed those targeting emerging markets – a result that was the reverse of the outcome for public market equities, according to global institutional investment advisor Cambridge Associates LLC.
The Cambridge Associates LLC Global ex U.S. Developed Markets Private Equity and Venture Capital Index returned 7.6% for the quarter ending June 30, 2015, as measured in US dollars. Its public market counterpart, the MSCI EAFE, rose just 0.6% over the same period. The Cambridge Associates LLC Emerging Markets Private Equity and Venture Capital Index posted a 4.4% gain for the quarter. Its counterpart, the MSCI Emerging Markets index, rose 0.8%.
Q2 Highlights from the CA ex Global U.S. Developed Markets Private Equity and Venture Capital Index
All of the Largest Vintage Years had Positive Returns for the Quarter
Seven vintages in the ex US developed markets index represented at least 5% of the index (i.e., were “meaningfully sized”), and all had positive returns in Q2. Funds raised in the largest vintage year, 2007, had the greatest impact on the index because they also had the highest return of the largest vintages, gaining 9.6%. Write-ups on investments in consumer, information technology (IT), manufacturing, and financial services companies accounted for the bulk of that vintage’s performance. Funds raised in 2012 had the lowest return of the group: 5.2%.
Calls and Distributions were both up slightly
Fund managers in the ex US developed markets index called $6.6 billion from their investors during the quarter, which represented a 3% increase from Q1. Seventy-two percent came from investors in funds raised in 2011-2013. Fund managers in the index distributed $16.9 billion, a 5% increase over Q1, with $5.4 billion of the total going to investors in the 2006 vintage.
All of the meaningfully-sized sectors in the index had positive returns for the quarter
The seven meaningfully-sized sectors in the global developed markets index had positive returns in Q2, with two of them tying for the highest return: IT and financial services, which both gained 13.2%. Among the other five sectors, returns ranged from a low of 8.5% for media to a high of 10.4% for software. Consumer, perennially the largest sector, gained 9.6% and represented almost 23% of the index by weight.
Three of the five largest regions registered double-digit gains in Q2
Returns among the five largest regions in the index ranged from a high of 12.2% for companies in the UK (the largest region by weight) to a low of 6.7% for companies based in the US, which benefited the least in the group from the stabilizing euro. French companies ran a close second, earning 12.0% for the period.
Q2 Highlights from the CA Emerging Markets Private Equity and Venture Capital Index
The 2011 vintage was the top performer of the largest vintages
As in the ex US global index, all of the meaningfully-sized vintages in the emerging markets index had positive returns for the quarter. Of the seven vintage years in that group, funds raised in 2011 had the highest return: 10.6%. The largest vintage year, 2007, represented almost a quarter of the index’s value and gained 1.7%. Just behind were funds raised in 2005, which rose 1.5% for the period, the poorest performance of the large vintages.
Distributions were up sharply over Q1
Fund managers in the emerging markets index called $3.7 billion from their investors in Q2, a 10% increase over the prior quarter. However, for the first half of the year calls were down 27% from the same six-month period in 2014.
“Capital distributions jumped 49% over Q1 to a total of $6.5 billion for the quarter. Even with such a robust number, however, total distributions for the first six months were down about 5% from the same period in 2014. Fund managers in the 2006 and 2007 vintage distributed about two-thirds of the total, with the latter singlehandedly distributing almost $3 billion,” said Andrea Auerbach, Managing Director and Head of Global Private Investment Research at Cambridge Associates.
Manufacturing was the top performer among largest sectors
All six significantly-sized sectors in the emerging markets index had positive returns in Q2. Manufacturing led the way with a 9.6% gain, followed by health care, which returned 7.5%. Financial services rose just 1.9%, making it the poorest performer of the group. Consumer companies represented about 21% of the emerging markets index and gained 4.9%.
South Korea joins group of largest regions
China and India have historically dominated the emerging markets index, with China by far the more significant of the two in terms of weight in the index. While this remained true in Q2, South Korea joined China and India as a significant presence in the index, representing 5.2% of the index’s weight at the end of the quarter. South Korean companies gained 8.4%, the best performance of the three top-sized regions. Companies in China represented 45.6% of the index and earned 7.8% for the period. India was the only country of the group to post a negative return, falling 1.5%.
For more detailed information please see the Cambridge Associates commentary on the Q2 2015 benchmarks at http://www.cambridgeassociates.com/our-insights/research/global-ex-us-pevc-benchmark-commentary-7/.
About the Indexes
Cambridge Associates derives its Global ex US Developed Markets Private Equity and Venture Capital Index from the financial information contained in its proprietary database of global ex US private equity and venture capital funds. As of June 30, 2015, the database comprised 765 global ex US developed markets private equity and venture capital funds formed from 1986 to 2015 with a value of about $256 billion. Ten years ago, as of June 30, 2005, the benchmark index included 374 global ex US developed markets funds, whose value was roughly $80 billion.
Cambridge Associates derives its Emerging Markets Private Equity and Venture Capital Index from the financial information contained in its proprietary database of global ex US private equity and venture capital funds. As of June 30, 2015, the database comprised 553 emerging markets funds formed from 1986 to 2015 with a value of about $159 billion. Ten years ago, as of June 30, 2005, the benchmark index included 216 emerging markets funds, whose value was $14 billion.
About Cambridge Associates
Founded in 1973, Cambridge Associates is a provider of independent investment advice and research to institutional investors and private clients worldwide. Today the firm serves nearly 1,000 global investors and delivers a range of services, including investment consulting, outsourced investment solutions, research and tools (Optica digital platform), and performance monitoring, across asset classes. The firm compiles the performance results for more than 5,600 private partnerships and their nearly 70,000 portfolio company investments to publish its proprietary private investments benchmarks, of which the Cambridge Associates LLC U.S. Venture Capital Index® and Cambridge Associates LLC U.S. Private Equity Index® are widely considered to be among the standard benchmark statistics for these asset classes. Cambridge Associates has more than 1,200 employees serving its client base globally and maintains offices in Arlington, VA; Boston; Dallas; Menlo Park, CA; London; San Francisco; Singapore; Sydney; and Beijing. Cambridge Associates consists of five global investment consulting affiliates that are all under common ownership and control. For more information about Cambridge Associates, please visit www.cambridgeassociates.com.
Cambridge Associates has been selected to provide data and to develop and maintain customized industry benchmarks for a number of prominent industry associations, including the African Private Equity and Venture Capital Association (AVCA); the Asia Pacific Real Estate Association (APREA); Australian Private Equity & Venture Capital Association Limited (AVCAL); Canada’s Venture Capital and Private Equity Association (CVCA); the Hong Kong Venture Capital and Private Equity Association (HKVCA); the Indian Private Equity and Venture Capital Association (IVCA); Institutional Limited Partners Association (ILPA); the Latin American Private Equity and Venture Capital Association (LAVCA); the National Venture Capital Association (NVCA); and the New Zealand Private Equity & Venture Capital Association Inc. (NZVCA). Cambridge Associates also provides data and analysis to the Emerging Markets Private Equity Association (EMPEA).
Both the Cambridge Associates LLC U.S. Private Equity Index® and the Cambridge Associates LLC U.S. Venture Capital Index® are reported each week in Barron’s Market Laboratory section. In addition, complete historical data can be found on Standard & Poor’s Micropal products and on our website, www.cambridgeassociates.com.
This release is provided for informational purposes only and is not intended to be investment advice. Any references to specific investments are for illustrative purposes only. The information herein does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. This release is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. Past performance is not a guarantee of future returns. With regard to any references to securities indices, such indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds. Investments cannot be made directly in an index.