Limited Partner Distributions Exceeded Contributions for the 9th Consecutive Quarter in both Alternative Asset Classes
BOSTON, MA (Oct. 14, 2014) – This year began on a positive note for investors in U.S. private equity and venture capital funds, with both asset classes earning positive returns for the three-month period ending March 31, 2014. While venture capital outperformed private equity for the second quarter in a row, both asset classes easily bested the public markets, according to Cambridge Associates LLC benchmark indexes. Q1 marked the seventh and tenth consecutive quarter of positive returns, respectively, for the private equity and venture capital benchmarks.
The Cambridge Associates LLC U.S. Private Equity Index® rose 3.1% in the first quarter versus the S&P 500, which increased 1.8%. This suggests that private equity is back on track to outperform the public markets versus the 1, 3, and 5-year time periods, where PE has had difficulty keeping pace with strong public equity markets. Over ten years, the index’s annualized return was 14.0%, which was significantly better than the S&P 500’s 7.4% and higher than all public equity benchmarks. The Cambridge Associates LLC U.S. Venture Capital Index® returned 4.9% for the quarter, beating all public equity benchmarks for the period. The venture index did the same for the one-year and ten-year marks, returning 30.5% and (an annualized) 10.0%, respectively.
The following table details the performance of the Cambridge Associates benchmarks against several key public market indices.
* Capital Changes Only
Private Equity (PE) Performance
Software Company Returns Led the Way among the Largest Sectors in the PE Index
“Value in the PE index was highly diversified by sector at the end of the first quarter, with seven sectors representing 5% or more of the index. Together they comprised approximately 85% of the index’s value. Of these only one, financial services, posted a negative return for the quarter, falling 2.1%. Software companies led the way, earning 6.3%, helped mainly by the strong performance of public market comparables – over the same time period the S&P 500 Software Index was up 7% and managers wrote up their company valuations accordingly,” said Keirsten Lawton, Managing Director and Co-Head of US Private Equity Research at Cambridge Associates.
Energy Companies Attracted the Most Capital during the Quarter
In keeping with recent investment activity, energy companies received the most attention from investors, attracting nearly $4.5 billion, or more than a quarter of the total.
Distributions Fell in Q1, but Still Outpaced Contributions
Fund managers in the PE index called $16.9 billion in the first quarter, the most since the final quarter of 2012, and they distributed $37.9 billion to their limited partners (LPs), which was down 11% from the prior quarter. Q1 was the ninth consecutive quarter in which distributions outnumbered contributions.
LPs in the 2007 vintage funds contributed the most capital of any vintage in the quarter with $4.3 billion, which was more than 21% of the total. But they also received the largest amount of capital returned during the period, $8.2 billion.
The Largest Vintages in the PE Index all had Positive Returns in Q1
At the end of the quarter six vintage years in the PE index represented at least 5% of the benchmark’s value (“significantly sized”): 2004-2008, and 2011. Returns for the group, which were all positive for the period, ranged from 3.7% for funds launched in 2011 to 0.9% for the 2004 vintage.
The largest vintage year was 2007, which represented more than a quarter of the index and rose 3.3% for the period. Write-ups in information technology (IT) were the single largest driver of the 2007 vintage year returns, with a significant boost also provided by the consumer and health care sectors.
Venture Capital (VC) Performance
The Seven Largest Vintages in the VC Index Posted Positive Q1 Returns
As in the PE benchmark, all of the significantly sized vintage years in the VC index earned positive returns in the first quarter. Among the group, the spread between the highest return, the 2005 vintage’s 6.1%, and the lowest, the 2004 vintage’s 2.1%, was 4%.
The 2005 vintage’s performance benefited primarily from write-ups in IT and software. Returns for the two largest vintage years, 2006 and 2007, which rose 3.8% and 4.6% respectively, were driven primarily by higher valuations for health care companies.
VC Distributions Hit Highest Level in almost 14 Years
“Fund managers in the venture capital benchmark called more than $3.5 billion from their investors in the first quarter, which represented a 15% increase over calls in the same period in 2013. Distributions were nearly double contributions, with fund managers returning almost $7 billion to their LPs. This marked the highest level of quarterly distributions in the benchmark since Q3 2000 and the ninth quarter in a row in which distributions outpaced contributions,” said Peter Mooradian, Managing Director, Private Growth Research at Cambridge Associates.
More than a quarter of the total capital called during the first period came from funds launched in 2012. On the distribution side, fund managers in the 2000, 2003, and 2007 vintages distributed close to half of the quarter’s total distributions.
The Health Care Sector was the Top Performer in the VC Index
Three sectors, namely software, IT and healthcare, continued to dominate the VC Index. Together, these sectors represented more than 78% of the index, and they attracted roughly 79% of the total capital invested during the quarter. All three had positive returns for the period, with health care leading the way earning 11.1%, followed by software at 9.8% and IT at 2.6%.
For additional details on the performance of the Cambridge Associates private equity and venture capital benchmarks click here.
About Cambridge Associates and the Indices
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 (Research Navigatorsm and Benchmark Calculator), 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 1,100 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 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.
Inquiries about these indices should be addressed to: Frank Lentini at Sommerfield Communications, 55 Broad Street, 20th Floor, New York, NY 10004; 212.255.8386; (fax) 212.255.8459; firstname.lastname@example.org.