BOSTON (January 31, 2018) – Private equity (PE) and venture capital (VC) managers based in developed markets outside the US returned 10.2% in the second quarter of 2017 and 14.7% for the first half of the year, measured in US dollar terms, according to the Cambridge Associates LLC Global ex US Developed Markets PE/VC Index, a benchmark of the alternative asset classes published by global investment firm Cambridge Associates. Measured in euros, the quarterly and first-half returns were 3.3% and 6.1%, respectively.
The Global ex US Developed Markets PE/VC Index outperformed the comparable public market index so far in 2017. The MSCI EAFE index, which measures public equity performance in developed markets outside the US, returned 6.1% in Q2 2017 and 13.8% for the first two quarters of the year, in USD terms. In euro terms, the MSCI EAFE returned -0.5% in Q2 2017 and 5.3% over the first half of the year.
“Private investments in developed markets outside the US continue to generate strong returns compared to public equities, over both long and short time periods,” says Andrea Auerbach, Head of Global Private Investments at Cambridge Associates.
PE/VC Managers in Emerging Markets Returned 3.3% in Q2 2017
Meanwhile, PE and VC managers based in emerging markets posted a 3.3% return in Q2, and a 7.5% return for the first two quarters of the year, according to the Cambridge Associates LLC Emerging Markets PE/VC Index, another regional alternative asset benchmark published by Cambridge Associates. The Emerging Markets PE/VC Index underperformed the comparable public market index, the MSCI Emerging Markets Index, which returned 6.4% for the second quarter and 18.6% for the first half of 2017.
“Alternative investment managers in emerging markets have underperformed public markets in the region so far this year, but they have generated stronger returns than public equities over longer time horizons,” says Vish Ramaswami, Managing Director at Cambridge Associates.
Cambridge Associates derives its Global ex US PE/VC Indexes from the financial information contained in its proprietary database of nearly 900 PE and VC funds in developed markets outside the US and nearly 650 PE and VC funds in emerging markets, with a combined value of roughly $458 billion.
Table 1. Returns for the Global ex US Developed and Emerging Markets PE/VC Indexes vs Public Counterparts
Periods Ending June 30, 2017 • Percent (%)
Sources: Cambridge Associates LLC, MSCI Inc., Standard & Poor’s, and Thomson Reuters Datastream. MSCI data provided “as is” without any express or implied warranties.
Notes: The PE/VC indexes are pooled horizon internal rates of return and are based on limited partners’ fund-level performance; the returns are net of fees, expenses, and carried interest. Because the indexes are capital weighted, performance is mainly driven by the largest vintage years. Public index returns are shown as both time-weighted returns (average annual compound returns) and dollar-weighted returns (modified public market equivalent). The Cambridge Associates mPME replicates private investment performance under public market conditions. The public index’s shares are purchases and sold according to the private fund cash flow schedule, with distributions calculated in the same proportion as the private fund, and mPME net asset value is a function of mPME cash flows and public index returns.
* MSCI All Country World Constructed Index: Data from 1/1/1986 to 12/31/1987 represented by MSCI World Index gross total return. Data from 1/1/1988 to present represented by MSCI ACWI gross total return.
** MSCI EM Constructed Index: Data from 1/1/1986 to 12/31/1987 represented by GFD Emerging Markets price return. Data from 1/1/1988 to present represented by MSCI Emerging Markets gross total return.
A few highlights from the Global ex US Developed Markets PE/VC Index in Q2 2017:
- Distributions to PE and VC investors in developed markets outside US rose in Q2 2017. PE and VC managers in the ex US Developed Markets Index distributed $17.8 billion to investors during Q2 2017, and called $8.2 billion from investors during the quarter.
- Investments in materials companies by PE and VC managers outside US outperformed other sectors in Q2 2017. Among the six sectors each worth 5% or more of the ex US Developed Markets Index, materials investments performed the best in Q2, with a return of 13.4%. The lowest performer among the major sectors in Q2 was health care, which posted a 9.1% return. Consumer companies garnered 40% of investments for the quarter.
- The Netherlands outperformed other countries in the ex US Developed Markets Index in Q2 2017. Companies based in The Netherlands posted a 17.0% return in Q2 2017, better than other companies in the ex US Developed Markets Index. US companies returned 7.1%, the lowest quarterly return in the index. (Funds in the ex US Developed Markets Index primarily invest in companies in Europe, but occasionally make investments in US companies as well.)
- Funds raised in 2007 by non-US developed market PE/VC managers generated strongest returns in Q2 2017. Funds in the ex US Developed Markets PE/VC Index raised in 2007 posted a 13.4% return in the second quarter of 2017. That’s almost 900 basis points higher than the 2008 vintage year’s return in Q2 2017, 4.8%.
Some takeaways from the Emerging Markets PE/VC Index in Q2 2017:
- Distributions to emerging market PE/VC investors in Q2 2017 were third highest in four decades.In the second quarter of 2017, PE and VC managers in emerging markets distributed over $7.3 billion to investors, a 66% increase from Q1 and the third highest quarterly distribution since the inception of the Index in 1986. Managers in the Index called $4.5 billion from investors in Q2 2017.
- Highest returns for PE/VC managers in Q2 2017 were from consumer discretionary companies.Consumer discretionary companies in the Emerging Markets PE/VC Index posted a 7.2% return in Q2 2017, while information technology companies posted a 3.7% return, the lowest of the major sectors in the Index.
- PE/VC investments in South Korean businesses outperformed those in India and China in Q2 2017. Companies in the Emerging Markets Index based in South Korea returned 8.5% during Q2 2017, while Indian and Chinese firms in the Index returned 3.2% and 2.8%, respectively, for the quarter.
- Strongest returns in PE/VC in emerging markets in Q2 2017 were from funds raised in 2013.Funds in the Emerging Markets PE/VC Index raised in 2013 posted a 6.3% return during Q2 2017. Funds in the Index raised in 2008 performed worst, with a 1.6% return for the quarter.
For additional details on the performance of the Cambridge Associates global private equity and venture capital benchmarks in the second quarter of 2017, please contact Katarina Wenk-Bodenmiller of Sommerfield Communications at +1 (212) 255-8386 or firstname.lastname@example.org, or click here.
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, 2017, the database comprised 879 global ex US developed markets private equity and venture capital funds formed from 1986 to 2017, with a value of about $268 billion. Ten years ago, as of June 30, 2007, the benchmark index included 509 global ex US developed markets funds, whose value was roughly $160 billion. The funds in this index invest primarily in developed markets in Australia, Canada, Israel, Japan, New Zealand, Singapore and Western Europe.
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, 2017, the database comprised 642 emerging markets funds formed from 1986 to 2016, with a value of about $190 billion. Ten years ago, as of June 30, 2007, the benchmark index included 307 emerging markets funds, whose value was over $37 billion. The funds in this index invest primarily in Africa, emerging Asia, emerging Europe, Latin America & Caribbean, and the Middle East ex Israel.
The pooled returns represent the net periodic 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 carried interest.
About Cambridge Associates
Cambridge Associates is a leading global investment firm. We aim to help endowments & foundations, pension plans, and private clients implement and manage custom investment portfolios that generate outperformance so they can maximize their impact on the world. Working alongside its early clients, among them leading university endowments, the firm pioneered the strategy of high-equity orientation and broad diversification, which since the 1980s has been a primary driver of performance for institutional investors. Cambridge Associates delivers a range of portfolio management services, including outsourced CIO, non-discretionary portfolio management, staff extension, and asset class mandates.
Cambridge Associates maintains offices in Boston; Arlington, VA; Beijing; Dallas; London; Menlo Park, CA; New York; San Francisco; Singapore; Sydney; and Toronto. Cambridge Associates consists of five global investment consulting affiliates that are all under common ownership and control. For more information, please visit www.cambridgeassociates.com
The information presented 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 research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. Some of the data contained herein or on which the research is based is current public information that CA considers reliable, but CA does not represent it as accurate or complete, and it should not be relied on as such. Nothing contained in this report should be construed as the provision of tax or legal advice. Past performance is not indicative of future performance. Broad-based securities indexes 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. Any information or opinions provided in this report are as of the date of the report, and CA is under no obligation to update the information or communicate that any updates have been made. Information contained herein may have been provided by third parties, including investment firms providing information on returns and assets under management, and may not have been independently verified.