Private Equity Investments in ex U.S. Developed and Emerging Markets Posted Solid Gains in Q1 and Bettered Returns of Comparable Public Market Indexes for the Period, according to Cambridge Associates Benchmarks
Distributions in the Emerging Markets Index were the Second Highest in the History of the Benchmark
BOSTON (Nov. 5, 2014) – Mirroring the performance of private equity and venture capital funds in the U.S., similar investments in ex U.S. developed and emerging markets ended the first quarter of 2014 with positive returns that bested those of their public market counterparts for the same period. Private equity funds that focus their investments on companies headquartered in developed markets outside the U.S. outperformed those investing in emerging markets, which was a reversal of the results in the same period one year earlier, according to global institutional investment advisor Cambridge Associates LLC (CA).
The Cambridge Associates LLC Global ex U.S. Developed Markets Private Equity and Venture Capital Index returned 3.4% for the quarter ending March 31, 2014, and 20.9% for the 12-month period ending on the same date. Its public market counterpart, the MSCI EAFE, rose 0.7% and 17.6% over the same periods, respectively. The Cambridge Associates LLC Emerging Markets Private Equity and Venture Capital Index posted a 2.7% rise for the quarter and a 14.4% gain for the one-year mark. Its counterpart, the MSCI Emerging Markets index, lost ground in both periods, falling 0.4% in Q1 and 1.1% for the year.
The following table shows the performance of the two CA benchmarks against their public equity counterparts over various time periods ending on March 31, 2014.
Sources: Cambridge Associates LLC, MSCI Inc., Standard & Poor’s, and Thomson Reuters Datastream. MSCI data provided “as is” without any express or implied warranties.
The CA developed markets index outperformed the MSCI EAFE in every period shown above except the five-year mark, with the margin between the two substantially larger over the longer periods. The CA emerging markets benchmark bested the MSCI Emerging Markets Index over every period except the 15-year mark.
Q1 Highlights from the CA ex Global U.S. Developed Markets Private Equity and Venture Capital Index
Distributions Fell but Still Outpaced Contributions for 8th Consecutive Quarter
Fund managers in the developed markets index called $8.3 billion from their limited partners (LPs) in the first quarter, which was up 12.9% over the prior quarter and the highest quarterly contributions since Q4 2012. Distributions on the other hand dropped 53% quarter-to-quarter to $9.1 billion, the smallest quarterly amount since Q2 2012.
“While distributions in the developed markets index fell sharply in Q1, they nevertheless significantly outpaced contributions, making Q1 the eighth consecutive quarter in which more capital has been returned to LPs than has been called from LPs. The spread between capital contributions and distributions, however, was smaller than in any of the previous four quarters,” said Andrea Auerbach, Managing Director and Head of Global Private Investment Research at Cambridge Associates.
The Developed Markets Index Was Highly Concentrated by Vintage, with Four Vintages Accounting for Almost Three-quarters of the Index
At the end of Q1, only four vintage years accounted for at least 5% of the index (i.e. were “meaningfully sized”): 2005-2008. Of the four, two vintages – 2006 and 2007 – represented just over half of the benchmark’s value. Together, the funds launched in these four vintage years represented 73.2% of the benchmark.
The largest vintage, 2006, had the lowest quarterly return of the four significantly sized vintages, 2.3%, while the 2008 funds had the highest, 4.1%.
Media was by Far the Top Performing Sector in Q1
The developed markets index was more diversified by sector than by vintage year, with a total of seven sectors representing at least 5% of the index’s value. Of the seven, six had positive returns for the quarter. The lone exception was financial services, which dropped 1.9% for the period. Media companies occupied the other extreme, returning 15.0% for the period, beating out the next highest performing sector, healthcare, by 9.3%.
Taken together, the three largest sectors in the index – consumer, health care, and information technology (IT) – represented just under half of the benchmark’s value and returned 3.9% on a dollar-weighted basis.
UK-based Companies Represented almost One-fourth of the Developed Markets Benchmark
Five countries in the developed markets index represented 5% or more of its value. Of the five, four were in Western Europe: France, Germany, Sweden, and the United Kingdom. The fifth, the U.S., had the highest return for the quarter: 6.7%. Of the Western European nations, companies based in France did best, gaining 5.7%, while those in Germany had the lowest return, 0.6%.
Because they represented 23.5% of the index, companies based in the U.K. had by far the greatest impact on the benchmark’s return. They earned 4.2% for the quarter.
Q1 Highlights from the CA Emerging Markets Private Equity and Venture Capital Index
Distributions Hit Near-record High
Capital calls in Q1 fell 27.6% from the prior quarter in the emerging markets index, to $3.4 billion. This was the lowest level of quarterly contributions since Q1 2013. Distributions for the quarter, however, rose more than 16% to $4.2 billion – the second highest quarterly distribution in the history of the index. LPs in the 2005 and 2007 vintages were the primary beneficiaries, receiving more than 68% of the total distributions.
The Top-sized Vintages all had Positive Returns for the Quarter
At the end of Q1 there were six vintages that were meaningfully sized: 2005-2008, and 2010-2011. Of the six, the largest vintage, 2007, had the second-highest return: 4.1%. Since funds launched in 2007 represented roughly one-third of the index, they had the greatest impact on the index’s performance for the quarter.
Of the remaining top-sized vintages, funds raised in 2006 did best, gaining 4.4% for the quarter. The 2011 vintage grew just 0.2%, the lowest return of the group.
All Five Meaningfully Sized Sectors Had Positive Q1 Returns
Among the five significantly sized sectors in the emerging markets benchmark in Q1, health care companies were the best performers, gaining 6.1%. Manufacturing companies returned 0.2%, the lowest of the group. Collectively, companies in the five largest sectors gained 3.3% for the period.
The largest sector, consumer, represented just over 21.2% of the index and returned 3.5% for the quarter.
Only Three Countries were Meaningfully Sized, though Companies in Two Smaller Regions Helped Boost Returns for the Quarter
China continued to dominate the emerging markets index, with companies based there representing more than 37% of the benchmark’s value. India and South Korea were the only other countries representing 5% or more of the index. Companies based in India returned 6.5% for the quarter, the highest of the three largest regions. Those based in China returned 3.7% while those in South Korea 1.5%.
While underneath the threshold for being meaningfully sized, companies in Indonesia and Singapore helped the benchmark’s overall performance by returning 16.0% and 6.6%, respectively, for the quarter.
For more detailed information please see the Cambridge Associates commentary on the Q1 benchmarks at http://www.cambridgeassociates.com/our-insights/research/global-ex-us-pevc-benchmark-commentary-2/
About the Indices
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 March 31, 2014, the database comprised 711 global ex US developed markets private equity and venture capital funds formed from 1986 to 2013 with a value of about $290 billion. Ten years ago, as of March 31, 2004, the benchmark index included 334 global ex US developed markets funds, whose value was roughly $62 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 March 31, 2014, the database comprised 532 emerging markets funds formed from 1986 to 2013 with a value of about $134 billion. Ten years ago, as of March 31, 2004, the benchmark index included 190 emerging markets funds, whose value was more than $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 over 950 global investors and delivers a range of services, including investment advisory, outsourced investment solutions, research and tools (Research Navigator and Benchmark Calculator), and performance monitoring, across asset classes. The firm compiles the performance results for over 5,400 private partnerships and their more than 68,000 portfolio company investments to publish proprietary private investments benchmarks. Cambridge Associates has more than 1,100 employees serving its client base globally and maintains offices in Arlington, VA; Boston; Dallas; Menlo Park, CA; London; 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 Institutional Limited Partners Association (ILPA), Australian Private Equity & Venture Capital Association Limited (AVCAL); the African Venture Capital Association (AVCA); the Hong Kong Venture Capital and Private Equity Association (HKVCA); the Indian Private Equity and Venture Capital Association (IVCA); the New Zealand Private Equity & Venture Capital Association Inc. (NZVCA); the Asia Pacific Real Estate Association (APREA); and the National Venture Capital Association (NVCA). Cambridge also provides data and analysis to the Emerging Markets Private Equity Association (EMPEA).