Performance vs. Comparable Public Market Indices was Mixed, According to Cambridge Associates
BOSTON (October 1, 2013) – In the first quarter of 2013, private equity and venture capital funds that invest in companies in emerging markets outperformed those that invest primarily in developed markets outside the U.S. Both alternative asset classes posted positive returns for the period, though a weakened Euro hurt their performance, as measured in U.S. dollar terms, 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 rose 0.1% in the quarter ending March 31, 2013, which marked the index’s third consecutive quarter of positive growth. The benchmark significantly underperformed the comparable public equity index, the MSCI EAFE, which earned 5.1%. The Cambridge Associates LLC Emerging Markets Private Equity and Venture Capital Index increased 2.4% over the same period and, in contrast to the developed index, bested its public equity counterpart, the MSCI Emerging Markets index, which fell 1.6%.
The following table shows the performance of the two Cambridge Associates benchmarks against their public equity counterparts over various time periods ending on March 31, 2013.
Global ex U.S. Developed and Emerging Markets Private Equity and Venture Capital Indices
Returns (%) in U.S. Dollars
Periods ending March 31, 2013
|For the periods ending March 31, 2013||Qtr.||1
|Ex-U.S. Developed Markets PE and VC||0.1||6.5||11.7||1.4||14.2||13.3||13.6|
|Emerging Markets PE and VC||2.4||6.0||9.9||7.0||13.0||8.4||8.1|
|Public Market Indices|
|MSCI Emerging Markets||-1.6||2.3||3.6||1.4||17.4||8.7||8.4|
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 first quarter and one year marks. The CA emerging markets benchmark bested the MSCI Emerging Markets index in the first four periods shown, but the situation was reversed for the 10-, 15-, and 20-year time horizons.
Q1 Highlights from the CA ex U.S. Global Developed Markets Index
The 2008 Vintage Funds Were the Top Performers among the Five Largest Vintages
Only five vintages in the developed markets index – vintage years 2004 through 2008 – represented at least 5% of the benchmark’s value. Of the five, funds raised in 2008 earned the highest return for the quarter, 2.4%. The largest vintage in the index, funds raised in 2006, rose just 1.5%, while the second largest vintage year, 2007, dropped 0.7%, which was the lowest return of the five. (Because CA’s indices are capital weighted, the largest vintage years are the primary drivers of the indices’ performance.)
Capital Calls and Distributions Were both down for the Quarter
Although distributions in Q1 were the lowest since the first quarter of 2012, they still outpaced contributions for the fourth consecutive quarter. Both calls and distributions were down from Q4 2012. Fund managers called $5.8 billion from their limited partners (LPs), a 46.8% drop, and they distributed $8.9 billion, a reduction of 26.4%.
“Almost $4 billion – just over 68% – of the capital contributions made by LPs [limited partners] in the quarter can be attributed to just three vintages: 2007, 2011, and 2012. On the distributions side, funds launched in 2007 led the way, distributing more than $2.2 billion for the period. In addition, the 2005, 2006, and 2008 vintage year funds each distributed more than $1 billion to their LPs. Combined with the 2007 funds, these vintages accounted for roughly 75% of the total capital distributed in the quarter,” said CA Managing Director Miriam Schmitter.
Media Continued Run as Top-performing Large Sector
Five of the seven largest sectors in the developed markets index earned positive returns for the quarter. Media companies, which led the way among meaningfully-sized sectors in 2012, continued to top the list in the first quarter by earning a 4.6% return. Financial services companies rose 1.6%, making them the second best performers. Consumer and healthcare, the two largest sectors, were also the weakest, falling 0.9% and 0.8%, respectively. Their performance, along with that of the third largest sector, information technology, which earned a 1.1% return, played a significant role in the index’s Q1 results.
Four of the Five Largest Countries in the in the Index had Negative Results in Q1
Only five countries represented at least 5% of the benchmark’s value. Of the five, all four located in Western Europe – France, Germany, Sweden, and the U.K. – returned negative results for Q1. The largest of the five, the U.K. represented 21.7% of the index and dropped 2.1%. The U.S. was the only country among the top five to post a positive return: fund investments in the U.S. returned 3.2% for the quarter.
A total of 75% of the capital invested during the quarter went to companies based in Western Europe; 16% went to companies based in the U.S., which was about 5% higher than the historical average.
Q1 Highlights from the CA Emerging Markets Index
The Largest Vintage Year, 2007, was also the Index’s Best Performer among the Largest Vintages
The emerging markets benchmark as a whole remained highly concentrated by vintage year (as well as by sector and geographic region), with just four vintages – 2005 through 2008 – accounting for more than 80% of the index’s value at quarter’s end. Funds raised in 2007 comprised, by far, the largest single vintage year in the index. The 2007 funds represented 36.5% of the benchmark, and they also turned in the highest return for the quarter, 3.3%; hence, they were a major driver of the index’s performance.
Capital Calls were down in Q1, but Distributions were up
LP capital contributions to funds in the benchmark dropped 54% from the previous quarter, to $1.9 billion, which was the smallest quarterly amount of capital called since the second quarter of 2009. Distributions increased 3% to $2.5 billion – the highest quarterly amount since the final quarter of 2011. The 2007 vintage accounted for the most contributions and distributions of any single vintage: $640 million and $850 million, respectively.
Healthcare was Standout Performer among Largest Sectors
Five sectors – consumer, financial services, healthcare, IT, and manufacturing – comprised almost three-fourths of the value of the emerging markets benchmark. However, returns among these sectors varied by almost 17% for the quarter. Healthcare led the way with a robust 16.5% return, followed by consumer, which earned 6.3%. Financial services was the only sector to post a negative return for the quarter, falling 0.4%.
Consumer companies attracted the most investment capital of any sector during the quarter – almost 39% of the total, which was about 15% higher than the long-term average.
Asia Continued to Attract the Bulk of Investment Capital
Only three regions in the index were large enough to be considered meaningfully sized: India, Mainland China, and South Korea. (Russia fell below the threshold for being considered meaningfully-sized during the quarter.) Together, they represented roughly 50% of the total index.
Mainland China was the only one of the top three to produce a positive return for the quarter, with companies headquartered there posting a collective 3.9% return for the quarter. Indonesian companies, while comprising only about 3.6% of the index’s value, helped boost the benchmark’s performance by returning over 31%, the largest return of any region in the index for the period.
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 March 31, 2013, the database included 715 global ex U.S. developed markets private equity and venture capital funds formed from 1986 to 2013 with a value of about $264 billion. Ten years ago, as of March 31, 2003, the benchmark index included 332 global ex-US developed markets funds, whose value was roughly $46 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 March 31, 2013, the database comprised 437 emerging markets funds formed from 1986 to 2013 with a value of about $108 billion. Ten years ago, as of March 31, 2003, the benchmark index included 155 emerging markets funds, whose value was slightly less than $12 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 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 over 5,300 private partnerships and their more than 67,000 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).
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