Both Classes of Alternative Investments Lagged Their Public Market Counterparts for the Quarter and Year, but Fared Better over Longer Time Periods
BOSTON (August 13, 2013) – Investments in equity-based alternative asset funds established in developed markets outside the U.S. and in emerging markets ended 2012 with solid results. Both private fund classes earned their third quarter of positive growth for the year and each had double-digit gains as measured in U.S. dollar terms, according to Cambridge Associates LLC (CA).
The Cambridge Associates LLC Global ex U.S. Developed Markets Private Equity and Venture Capital Index earned 4.6% for the quarter ending December 31, 2012, and 14.0% for the year. For comparison, the MSCI EAFE returned 6.6% and 17.3% for the same periods. The Cambridge Associates LLC Emerging Markets Private Equity and Venture Capital Index gained 3.5% and 10.0% for the quarter and year, respectively. Its public market counterpart, the MSCI Emerging Markets index, rose 5.6% and 18.6% over the same periods.
The performance of both CA benchmarks versus comparable public market indices over various time horizons ending on December 31, 2012 is shown below.
Global ex U.S. Developed and Emerging Markets Private Equity and Venture Capital Indices
Returns (%) in U.S. Dollars
Periods ending December 31, 2012
For the periods ending
December 31, 2012
|Ex-U.S. Developed Markets
PE and VC
PE and VC
MSCI Emerging Markets
Sources: Cambridge Associates LLC, MSCI Inc., Standard & Poor’s, and Thomson Reuters Datastream. MSCI data provided “as is” without any express or implied warranties.
“Although neither the ex U.S. developed nor the emerging markets index did as well as comparable public equity indices for the quarter or the year, the results looked better over longer periods. The developed markets index beat its public counterpart index in each of the other five periods shown above. And while the emerging markets index was less consistent, it outperformed its counterpart for the three- and five-year marks,” noted Miriam Schmitter, Managing Director at Cambridge Associates.
Some Additional Key Results from the Cambridge Associates LLC Global ex U.S. Developed Markets Private Equity and Venture Capital Index
Largest Vintages in the Index All Had Double-Digit Returns in 2012
Funds launched in 2006, which represented the largest single vintage in the index, had the smallest fourth quarter return of five largest vintages in the index: 3.5%. For the year, the same vintage rose 12.2%, which ranked fourth among the top five vintages.
Collectively, the five largest vintages comprised almost 84% of the benchmark’s value and had returns for the quarter that ranged from the 2006 vintage’s low up to a high of 6.5% for the second largest vintage in the index, the funds launched in 2007. For the year, the five largest vintages, funds launched in the years 2004 – 2008, all had double-digit returns, ranging from a low of 11.4% for the 2004 funds to a high of 19.6% for the 2008 vintage. The 2008 vintage’s performance was helped greatly by write-ups in its investments in financial services and consumer companies.
Of the Largest Sectors in the Index, Media Was the Worst Performer of the Quarter but the Best for the Year
Seven sectors each comprised at least 5% of the index’s value, making those sectors “meaningfully sized.” Of the seven, healthcare, the second largest sector in the benchmark, tied with manufacturing for first place for the quarter, with a gain of 7.0%, and was the second best performer of the same group for the year, with a return of 26.7%. Media, the smallest of the seven sectors, brought up the rear for the quarter, rising just 3.7%, but lead the way for the year, rising 33.8%.
The U.K. Was the Best Performing Region in the Benchmark for the Quarter and the Year
Five regions in the developed markets index were meaningfully sized: the U.K., U.S., Germany, France, and Sweden. (The U.S. is included because some funds in the index invest in companies based in the U.S.) For the third year in a row, all of the meaningfully-sized regions generated positive annual returns. Among the five, the United Kingdom was both the largest and the best performing region for the quarter and the year, returning 8.5% and 26.2%, respectively for the periods. Germany was the second best for the quarter, gaining 6.1%, while the U.S. was second for the year, returning 21.2%. France was the worst performing region in both periods, retuning 3.4% and 5.6%, respectively, for the quarter and the year.
Annual Capital Distributions Were Greater than Contributions for the Second Year in a Row; both Were Lower than in 2011
In the fourth quarter, fund managers in the developed markets index called $10.7 billion from their limited partners, a 26.2% increase over the third quarter, and they returned $12.1 billion, an 18.1% drop. This was the third quarter in a row in which distributions were greater than calls. For the year, contributions were down 5.6% from 2011, to $35.7 billion, and distributions dropped 8.7%, to $43.5 billion. This was the second consecutive year in which distributions outpaced contributions.
Of the monies invested by fund managers for the quarter, just over 53% went to companies based in Western Europe, which was 24% less than the long-term average.
Some Additional Key Results from the Cambridge Associates LLC Emerging Markets Private Equity and Venture Capital Index
The Largest Vintage in the Index, the 2007 Funds, Tied for Best Annual Performance
As in the ex U.S. global developed markets benchmark, returns for the quarter and the year in the emerging markets index were positive for all of the significantly-sized vintages. Of the four such vintages, the largest, 2007, rose 3.8% for the quarter and 12.6% for the year. The annual return tied that of funds launched in 2006, the second largest vintage, for best performance of the group. Funds launched in 2007 represent 36% of the value of the benchmark, while the 2006 funds represented 17.4%. The 2008 vintage, the smallest of the four, had the lowest quarterly and annual performance, returning 2.6% and 9.8%, respectively.
Manufacturing Was the Leading Sector in Terms of Quarterly Returns; Financial Services Led for the Year
There were five meaningfully-sized sectors in the index: consumer, financial services, healthcare, information technology, and manufacturing. Two sectors that were included in the third quarter, energy and media, no longer met the criterion for being meaningfully sized.
Returns for the quarter ranged from a high of 11.7% for manufacturing companies, which was driven by portfolio company write-ups, to a low of -4.1% for IT. IT also had the lowest annual return, -1.6%. This was the first time in three years that IT companies dragged down the results of the largest sectors in the index. Financial services companies generated a 22.0% return for 2012, the benchmark’s highest.
South Korea Top Geographic Region for both the Quarter and the Year
Among the four meaningfully-sized geographic regions in the index, the largest continued to be Mainland China, which alone represented 35% of the benchmark’s value. Portfolio companies based there generated a 3.1% return for the fourth quarter and a 5.5% return for the year. Companies based in India, the next largest sector, earned 1.1% and 15.1% for the quarter and year, respectively.
By far the largest gains among the top four regions, though, were made by companies based in South Korea. They generated a return of 19.2% for the fourth quarter and a stunning 40.1% for the year. Roughly 80% of the annual gain can be attributed to manufacturing companies.
Capital Calls and Distributions Were Up, Barely, over the Previous Quarter; for the Year, Contributions and Distributions Were Both Down
Fund managers in the emerging markets index called $4.0 billion from their limited partners during the quarter, and they distributed $2.4 billion. These represented increases over the prior quarter of just 0.3% and 0.8%, respectively. For the year, limited partners were asked to contribute less capital, and receive less in distributions, than they did in 2011. Calls in 2012 were down $1.7 billion from 2011, to $15.5 billion. Distributions for the year dropped 36% from the prior year to $7.7 billion. This was the first annual decrease in distributions since 2009.
About the Indices
Cambridge Associates derives its Global ex U.S. Developed Markets Private Equity and Venture Capital Index from the financial information contained in its proprietary database of global ex U.S. private equity and venture capital funds. As of December 31, 2012, the database comprised 717 global ex U.S. developed markets private equity and venture capital funds formed from 1986 to 2012 with a value of about $268 billion. Ten years ago, as of December 31, 2002, the benchmark index included 326 global ex U.S. developed markets funds, whose value was roughly $44 billion.
Cambridge Associates derives its Emerging Markets Private Equity and Venture Capital benchmark from the financial information contained in its proprietary database of global ex U.S. private equity and venture capital funds. As of December 31, 2012, the database comprised 437 emerging markets funds formed from 1986 to 2012 with a value of about $106 billion. Ten years ago, as of December 31, 2002, the benchmark index included 154 emerging markets funds, whose value was slightly less than $12 billion.
The pooled returns represent the net end-to-end rates of return calculated on the aggregate of all cash flows and market values as reported to Cambridge Associates by the funds’ general partners in their quarterly and annual audited financial reports. These returns are net of management fees, expenses, and performance fees that take the form of a carried interest.
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 consulting, outsourced investment solutions, research and tools (Research Navigatorsm and Benchmark Calculator), and performance monitoring, across asset classes. The firm compiles the performance results for more than 5,300 private partnerships and their more than 67,000 portfolio company investments to publish proprietary private investments. 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 capublic6.wpengine.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).
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