Commentaries

Global ex US PE/VC Benchmark Commentary
Fourth Quarter 2020 Download Report

In 2020, the Cambridge Associates LLC Developed Markets (ex US) Private Equity and Venture Capital Index® returned 33.1% in USD terms.

In 2020, the Cambridge Associates LLC Developed Markets (ex US) Private Equity 1 and Venture Capital (PE/VC) Index® returned 33.1% in USD terms. The index suffered in first quarter during the onset of the COVID-19 pandemic but recovered quickly and ended the year with the fourth-highest quarterly return since the inception of the benchmark. Because the index’s return is measured in US dollars, the currency’s value vis-à-vis the euro impacts its performance. The US dollar lost significant value against the euro in second half 2020, which strengthened performance measured in USD terms (Figure 1); for the year, the index’s return in euros was 22.0%. The Cambridge Associates LLC Emerging Markets Private Equity and Venture Capital Index® earned 25.6% for the year, elevated by its second-best quarterly return ever in the fourth quarter. The developed markets PE/VC index has handily outperformed its public market counterparts across time based on modified public market equivalent (mPME) returns. The same is true for the emerging markets PE/VC index, although its mPMEs earned better returns over the last six months. Cambridge Associates’ mPME calculation is a private-to-public comparison that seeks to replicate private investment performance under public market conditions.

FIGURE 1 GLOBAL EX US PRIVATE EQUITY AND VENTURE CAPITAL INDEX RETURNS
Periods Ended December 31, 2020 • Percent (%)

* 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 total return gross.
Sources: Cambridge Associates LLC, Global Financial Data, Inc., MSCI Inc., and Thomson Reuters Datastream. MSCI data provided “as is” without any express or
implied warranties.

Calendar Year 2020 Highlights

  • Developed markets (ex US) PE/VC had one of its strongest years ever in 2020, which further increased the index’s dominance over the comparable public benchmark (MSCI EAFE Index) in all time periods listed in Figure 1. The emerging markets benchmark outperformed its public market peer (the MSCI Emerging Markets Index) in the last year and regained its lead as the better-performing index across almost every time period.
  • As of December 31, 2020, public companies accounted for a much larger portion of the emerging markets index than of the developed one (more than 28% for emerging and just under 5% for developed).
  • In 2020, performance of information technology (IT) and consumer discretionary was head-and-shoulders above the other large sectors, although all earned double-digit returns for the year within the developed markets index. In the emerging markets PE/VC benchmark, IT, healthcare, and consumer discretionary returned more than 45%, while financials was the only sector that didn’t break 10% for the year.

Developed Markets (ex US) PE/VC Performance Insights

After a steep sell-off in the beginning of the year as the COVID-19 pandemic shut down large parts of the global economy, public equities rebounded and finished 2020 with positive returns. The economic recovery varied by region depending on the spread of the virus, national fiscal stimulus spending, and government policy for business re-openings. The developed markets index (MSCI EAFE Index) underperformed emerging markets (MSCI Emerging Markets Index) driven by lower returns from IT and consumer discretionary companies. The developed markets PE/VC index had a stellar year in 2020, earning 33.1% and representing the highest calendar year return since 2006. At year-end, 14 vintage years (2006–19) made up all the index’s value; all but the “oldest” (2006 and 2007) returned more than 20% for the year.

According to Dealogic, 14 European PE–backed companies went public in 2020 either through a traditional IPO or a SPAC (special purpose acquisition company). Combined, the public deals exceeded $6.7 billion, with two IPOs (THG Holdings and Nordnet) accounting for more than half the value. Six of the companies were IT, and the rest occurred in finance, energy, industrials, and consumer sectors. Notably, two of the public offerings coded as finance are SPACs currently seeking a target and could acquire a company in a different sector. There were 768 PE-backed M&A transactions in 2020, representing a relatively active year despite the global pandemic. Within the sample, 224 (or about 30%) of the deals had publicly disclosed valuation data and those averaged $766 billion per transaction. Unsurprisingly, the lowest number of M&As occurred in second quarter during the initial COVID-19 lockdowns.

Vintage Years

The number of meaningfully sized vintage years (those that represented at least 5% of the index’s value) at the end of 2020 rose to seven (from five at the end of 2019); combined, the large vintages (2012–18) accounted for almost 83% of the benchmark’s value (Figure 2). Vintage years 2016–18 each grew net asset value (NAV) by more than $13 billion during 2020, and now make up more than a third of the index; 2016 alone accounts for about 20%, which is a higher level of concentration by vintage year than seen in the other indexes. Outside of the largest vintage years in Figure 2, two others (2010–11) each represent close to 4% of the index, although these percentages are at least half of almost all the meaningfully sized vintages.

FIGURE 2 DEVELOPED MARKETS EX US PE/VC INDEX VINTAGE YEAR RETURNS:
NET FUND–LEVEL PERFORMANCE

As of December 31, 2020 • USD Terms • Percent (%)

Source: Cambridge Associates LLC.

Calendar year returns for the seven key vintage years were very strong, ranging from 21.0% (2013) to 67.1% (2018); notably, vintage years 2015 and 2017 also did well, earning 65.2% and 40.8%, respectively. Write-ups in IT and healthcare were key contributors in all three top-returning vintages, but consumer discretionary and communication services also helped drive returns for the 2015 and 2017 vintages, respectively.

LP Cash Flows

During 2020, despite the global pandemic and a short-term freeze in investment activity, limited partner (LP) contributions still managed to reach $41.5 billion, the second-highest annual amount since 2008. Distributions, however, dropped significantly from the previous year, and ended with the lowest annual amount since 2012. While annual contributions were split roughly equally from one half to the other, distributions were significantly higher in the second half ($24.3 billion) than they were in the first ($16.6 billion). Distributions have outpaced contributions since the beginning of 2011 (Figure 3), but due to the pandemic, and as predicted, the cycle turned in 2020, albeit just barely.

FIGURE 3 GLOBAL EX US DEVELOPED MARKETS PE/VC CONTRIBUTIONS,
DISTRIBUTIONS, AND NAV

Calendar Years 2006–20 • USD Billions

Source: Cambridge Associates LLC.

Capital calls were led by three vintage years (2016–18), each of which called at least $10 billion; combined they represented more than 75% of the total LP contributions during 2020. Distributions were less concentrated, as ten vintage years returned more than $1 billion. Notably, funds raised in 2012 distributed almost $12 billion (29% of total), and the older vintages (2006–07) together returned close to $7 billion.

Sectors

Figure 4 shows the GICS® sector breakdown of the Developed Markets (ex US) PE/VC Index and a public market counterpart, the MSCI EAFE Index. Compared to the public index, private markets had significant overweights in healthcare, IT, and consumer discretionary (5.5%, 10.7%, and 8.9%, respectively). The higher exposures to these sectors might explain the PE/VC index’s outperformance in recent time horizons. Calendar year 2020 was mostly defined by a COVID-19 economy, one that relied heavily on tech enablement and accelerated advancement in biotech and life sciences. Figure 4 also compares the sector breakdown of the private markets at the end of 2010 and 2020 to illustrate the reallocation of capital over the past decade. Unsurprisingly, most of the money was transferred into the same three sectors (healthcare, IT, consumer discretionary), while there was a 6.9% reduction in exposure to industrials.

FIGURE 4 GICS® SECTOR COMPARISONS
Percent (%)

Sources: Cambridge Associates LLC, FactSet Research Systems, and MSCI Inc. MSCI data provided “as is” without any express or
implied warranties.

At the end of 2020, there were eight meaningfully sized sectors, and all but two returned more than 20% for the year in USD terms (Figure 5). IT, consumer discretionary, and healthcare were well above the rest, earning 48.8%, 47.4%, and 34.5%, respectively. Across the board, second half returns were much stronger than those of the first half, when valuations were written down sharply to reflect the impact of COVID-19 in first quarter 2020. That said, IT and healthcare proved the most resilient as both were the only sectors to eke out positive returns in the first six months of the year. The US dollar lost value against the euro in second half 2020, causing weaker euro-denominated performance.

FIGURE 5 DEVELOPED MARKETS EX US PE/VC INDEX SECTOR RETURNS:
GROSS COMPANY–LEVEL PERFORMANCE

As of December 31, 2020 • Percent (%)

Source: Cambridge Associates LLC.

IT’s strong performance was spread widely across vintage years, with returns averaging more than 50% for vintages 2007 through 2019. Gains in consumer discretionary were more concentrated; almost 80% of the net appreciation change for the year was from vintages 2010, 2013, 2015–16. Vintage year returns in healthcare were slightly lower but more consistent than IT and consumer discretionary, as the vintage years with the largest allocations to the sector (2012–13, 2015–17) all earned between 31% and 40% for the 2020 calendar year.

The index’s four largest sectors—consumer discretionary, IT, healthcare, and industrials (in rank order)—represented 75% of its value and returned 33.3% on a gross USD-weighted basis and 25.3% on a euro-weighted basis. Almost 79% of the capital invested during 2020 was in IT, healthcare, consumer discretionary, and industrials (from largest to smallest), although IT and consumer discretionary each had more than $10 billion in realizations, representing more than 50% of all capital realized. Since the inception of the index, managers invested about 67% in these four sectors. When compared with the long-term norms, the higher percentage in 2020 reflects the increased investment in healthcare and IT, which more than offset a decrease in consumer discretionary and industrials.

Countries

In 2020, there were seven meaningfully sized countries in the index, and all earned double-digit returns in USD terms (Figure 6). Given the weakening of the dollar in the second half of the year, returns in euros were lower for every country. Performance for UK companies was better when measured in pound sterling (18.9% in GBP compared to 12.7% in euro), although returns for the year still finished much lower when matched against the US dollar. Investments made in US 2 companies performed the best over the full year and accounted for the largest amount of the index’s value (17.3%). Sweden and the Netherlands were the second- and third-best performers, returning 40.5% and 31.7%, respectively. Notably, the United Kingdom was the only country to suffer a negative return in the first half of the year (-10.3%), while all others proved more resilient, potentially reflecting the regional impact of the pandemic. Throughout the year, the pandemic’s impact varied greatly by region as outbreaks surged locally, and restrictions to life and the economy, access to testing and vaccines, and government stimulus differed between countries.

FIGURE 6 DEVELOPED MARKETS EX US PE/VC INDEX COUNTRY RETURNS:
GROSS COMPANY–LEVEL PERFORMANCE

As of December 31, 2020 • Percent (%)

Source: Cambridge Associates LLC.

The 2010 vintage year accounted for more than 30% of the write-ups for US companies, although market value increases were relatively widespread. The strong performance for Swedish and Dutch businesses were elevated by the 2015–16 and 2016–17 vintages, respectively, with each set of vintage years accounting for about half of their country’s gains. In the United Kingdom, losses in the first half of the year were widespread across vintage years, with the most net depreciation coming from 2013 and 2016. For the year, the gross USD-weighted return for the three largest countries—Germany, the United Kingdom, and the United States—was 31.5%.

European companies attracted 77% of the capital invested during the year, led by those in the United Kingdom; an additional 16% of the invested capital was allocated to US-based businesses. Historically, Europe and the United States garnered 90%, with the difference being attributed to the higher than normal investment in the United States.

Emerging Markets PE/VC Performance Insights

Unlike the private asset classes, in the public markets, the emerging markets index (MSCI Emerging Markets Index) outperformed the developed markets (MSCI EAFE Index) by more than double as public equities continued their strong performance from 2019. Companies in many sectors earned double-digit returns, led by consumer staples and communication services. With a 25.6% annual return, the emerging markets PE/VC benchmark had its strongest year since 2010, performing more than twice as well as it did in 2019. At the end of 2020, vintage years from 2011 onward made up approximately 80% of the index’s value and annual returns among those vintages averaged more than 30%.

Vintage Years

Eight vintage years were meaningfully sized in 2020 and collectively they accounted for 80% of the total sample (Figure 7). All produced positive returns for the year, ranging from 11.0% (2011) to 50.8% (2014). The average pooled return of the eight vintages (2011–18) was 30.9%, an 18.1% increase from the average return of the meaningful years of the emerging markets index last year. The strong performance by 2014 vintage funds was driven in large part by write-ups in the consumer discretionary sector, and to a lesser extent, IT and healthcare. Across sectors, funds formed in the worst-performing vintage, 2011, had mixed results; IT, healthcare, and communication services saw write-ups, while consumer discretionary saw a meaningful decrease in valuations. The only other meaningfully sized vintage that experienced a write-down in the consumer discretionary sector was 2013.

FIGURE 7 EMERGING MARKETS PE/VC INDEX VINTAGE YEAR RETURNS:
NET FUND–LEVEL PERFORMANCE

As of December 31, 2020 • USD Terms • Percent (%)

Source: Cambridge Associates LLC.

LP Cash Flows

Emerging markets PE/VC funds called $22.7 billion from investors during 2020, which represented a 6.1% decrease from the previous year (Figure 8). Despite the reduction in contributions, the year still ranks as the fourth highest for dollars called since the inception of the index (behind 2017–19) yet remains nearly $5 billion lower than the peak in 2018. On the other hand, distributions increased 7.4% year-over-year as managers returned $25.7 billion in capital to investors, making 2020 the second-largest year ever (2017 was the highest). Compared to the managers in the developed markets index, emerging markets funds have seen far fewer distributions but a more consistent increase in PE/VC investment activity year-over-year. While the former might be explained by an overweight in VC, the latter more convincingly reflects a growing appetite for these regions.

FIGURE 8 GLOBAL EX US EMERGING MARKETS PE/VC CONTRIBUTIONS,
DISTRIBUTIONS, AND NAV

Calendar Years 2006–20 • USD Billions

Source: Cambridge Associates LLC.

Funds raised in 2014–19 were responsible for most of the capital called in 2020, amounting to $20.3 billion and representing 89.7% of the total. The largest three vintages were 2016–19, which called more than $2 billion each; 2017–18 led the pack with calls totaling more than $4 billion each. LP contributions in 2020 were slightly less concentrated among vintage years, with six that called capital north of $1 billion, compared with five in 2019.

Notably, funds in eight vintages distributed more than $2 billion, ranging from 2007–15, indicating the older vintages were able to sell some of their long-held investments. The trend of funds older than ten years distributing significant amounts of capital is a continuation from prior years. Further illustrating this point, funds raised in 2007 and 2011 distributed nearly 24% of the total capital returned to investors during the year, with 2014 vintage funds accounting for another 12%.

Sectors

Figure 9 shows the GICS® sector breakdown of the Emerging Markets PE/VC Index and a public market counterpart, the MSCI Emerging Markets Index. The breakdown provides context when comparing the performance of the two indexes. The chart highlights the relative overweights in the PE/VC index, like healthcare and consumer discretionary, and the underweights in financials and communication services. Figure 9 also includes the PE/VC sector weightings from December 2010 to detail sector movement over the last decade. In the developed markets indexes (US and ex US), weights in IT investments have increased significantly over the last ten years. Over that same time period, the emerging markets index has become somewhat more concentrated, with increased exposures to the consumer discretionary, healthcare, and IT sectors and decreased exposures to the communication services and consumer staples sectors. At the end of 2010, the largest three sectors in the index (consumer discretionary, consumer staples, and industrials, in rank order) made up slightly more than 41% of the total market value; in 2020, that number increased to about 62%. Consumer discretionary was still the largest sector in the index in 2020; however, IT and healthcare edged out financials to take the numbers two and three spots, respectively. Having grown to comprise 38% of the index from less than 20% in 2010, these two sectors saw the most dramatic change from their 2010 values.

FIGURE 9 GICS® SECTOR COMPARISONS
Percent (%)

Sources: Cambridge Associates LLC, FactSet Research Systems, and MSCI Inc. MSCI data provided “as is” without any express or
implied warranties.

All seven of the meaningfully sized sectors posted positive returns for the year; all except financials saw returns in the double digits (Figure 10). Returns across the key sectors ranged from 8.9% (financials) to 48.5% (IT), performance that compares favorably with 2019, when sector returns were between 9.0% (industrials) and 25.4% (consumer staples). Following its modest 13.2% return in 2019, IT outperformed all other meaningfully sized sectors in 2020, returning 48.5% and edging out the next best sectors, healthcare and consumer discretionary, which returned 45.8% and 45.1%, respectively. Write-ups in IT were fairly widespread, with 80% attributed to funds formed in 2007, 2011, and 2014–16. On a gross USD-weighted basis, the three largest sectors by market value—consumer discretionary, IT, and healthcare—returned 46.4% during the year. During the same period, the remaining four meaningfully weighted sectors returned 17.2%.

FIGURE 10 EMERGING MARKETS PE/VC INDEX SECTOR RETURNS:
GROSS COMPANY–LEVEL PERFORMANCE

As of December 31, 2020 • USD Terms • Percent (%)

Source: Cambridge Associates LLC.

The investment pace in 2020 was slower than that of the previous year (a decrease of about 14%). Companies across six sectors (in rank order: healthcare, IT, consumer discretionary, communication services, industrials, and financials) garnered 82% of the capital invested, with healthcare and IT alone attracting 44% of all capital. Over the long term, managers in the emerging markets index have allocated 78% of their capital to these six sectors, with 33% going to healthcare and consumer discretionary. Healthcare attracted 28% of the capital invested during the year, 15% more than its long-term norm of 13%; this is the biggest deviation above the long-term trend of any sector listed in 2020. On the flip side, consumer discretionary received 12% of the capital invested during the year. At 8% less than its long-term trend, this is the biggest deviation below the norm of any sector.

Countries

Highlighting the index’s geographic concentration, China remains, by far, the largest country component of the index (Figure 11). Notably, the index has become more concentrated during the last year, with China constituting almost 7% more of the index at the end of 2020 than at the end of 2019 due to a combination of higher than average invested capital and robust performance in both the first and second halves of the year. India and South Korea continue to be meaningfully sized, and as of the end of 2020, the United States constituted 5.9% of the index. 3 Three other countries—Hong Kong, Singapore, and Japan (from low to high)—represented between 2.8% and 4.9% of the index. Performance for the meaningfully sized geographies was strong in 2020, with all but India posting double-digit performance. Returns ranged from 7.3% (India) to 53.1% (China). For companies in India, 2007, 2010, and 2016–18 vintage funds accounted for the lion’s share of the write-ups during the year. For companies based in China, write-ups were widespread, with funds in eight vintage years (2007, 2011, 2013–18) experiencing write-ups of over $2.4 billion. However, returns were particularly high for 2014 vintage funds, which accounted for nearly 40% of all write-ups in Chinese companies; this was driven by significant write-ups in companies that experienced IPOs in recent years. With outsized performance across the board, the calendar year gross-weighted return for the four countries was 41.2%, nearly 2.5 times the return for 2019.

FIGURE 11 EMERGING MARKETS PE/VC INDEX COUNTRY RETURNS:
GROSS COMPANY–LEVEL PERFORMANCE

As of December 31, 2020 • USD Terms • Percent (%)

Source: Cambridge Associates LLC.

For the year, businesses in China, India, South Korea, the United States, and Singapore (in rank order) each amassed more than $1 billion of invested capital and, together, accounted for almost 80% of the capital deployed. Over the long term, these same countries garnered more than 58% of invested capital, with increases in capital to companies based in all five countries making up for the difference. China-based companies garnered 43% of invested capital during the year, above the long-term average of 33%, and once again the highest amount of any country. India and South Korea received the second- and third-most invested capital, at 14% and 9%, respectively, above their long-term averages of 9% and 6%.

 


Caryn Slotsky, Senior Investment Director
Wyatt Yasinski, Investment Associate
Drew Carneal, Investment Analyst

Figure Notes

Private equity includes only buyout and growth equity funds.

Global ex US Private Equity and Venture Capital Index Returns
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 capitalization 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). Returns are annualized, with the exception of returns less than one year, which are cumulative. The CA mPME replicates private investment performance under public market conditions. The public index’s shares are purchased 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.

Vintage Year Returns
Vintage year fund-level returns are net of fees, expenses, and carried interest.

Sector and Country Returns
Industry-specific gross company-level returns are before fees, expenses, and carried interest.

GICS® Sector Comparisons
The Global Industry Classification Standard (GICS®) was developed by and is the exclusive property and a service mark of MSCI Inc. and S&P Global Market Intelligence LLC and is licensed for use by Cambridge Associates. Other includes sectors that make up less than 3% of the CA benchmark.

About the Cambridge Associates LLC Indexes
Cambridge Associates derives its Developed Markets (ex US) 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 December 31, 2020, the database comprised 923 global ex US developed markets buyouts, growth equity, and venture capital funds formed from 1986 to 2020 with a value of about $406 billion. Ten years ago, as of December 31, 2010, the benchmark index included 569 global ex US developed markets funds, whose value was roughly $227 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 buyouts, growth equity, and venture capital funds. As of December 31, 2020, the database comprised 712 emerging markets private equity and venture capital funds formed from 1986 to 2020 with a value of about $304 billion. Ten years ago, as of December 31, 2010, the benchmark index included 410 emerging markets funds, whose value was about $86 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 the Public Indexes
The MSCI All Country World Index (ACWI) is a free float–adjusted, market capitalization–weighted index designed to measure the equity market performance of developed and emerging markets. As of December 31, 2020, the MSCI ACWI consisted of 49 country indexes comprising 23 developed and 26 emerging markets country indexes. The developed markets country indexes included are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. The emerging markets country indexes included are: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates.

The MSCI EAFE Index is a free float–adjusted, market capitalization–weighted index that is designed to measure large- and mid-cap equity performance of developed markets, excluding Canada and the United States. As of December 31, 2020, the MSCI EAFE Index consisted of the following 21 developed markets country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

The MSCI Emerging Markets Index is a free float–adjusted, market capitalization–weighted index that is designed to measure large- and mid-cap equity performance of emerging markets. As of December 31, 2020, the MSCI Emerging Markets Index included 26 emerging markets country indexes: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates.

The MSCI World Index represents a free float–adjusted, market capitalization–weighted index that is designed to measure the equity market performance of developed markets. As of December 31, 2020, it includes 23 developed markets country indexes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States.

 

 

 

Notes:

  1. The private equity index includes buyout and growth equity funds.
  2. Funds in the developed markets (ex US) PE/VC benchmark primarily invest in companies in Europe, but occasionally make investments in US companies, as well. This is particularly true of “global” managers included in the ex US indexes.
  3. Funds in the emerging markets PE/VC benchmark occasionally invest in companies in developed markets countries, as well as those in the emerging markets regions.
Read More
Past Reports
US PE/VC Benchmark Commentary
Second Quarter 2021 Download Report

In the first half of 2021, US private equity and venture capital returns continued the torrid pace that started in second quarter 2020.

In the first half of 2021, US private equity and venture capital returns continued the torrid pace that started in second quarter 2020. For the six months ended June 30, 2021, the Cambridge Associates LLC US Private Equity Index® returned 25.5% (11.4% and 12.5% in first and second quarters, respectively) and the Cambridge Associates LLC US Venture Capital Index® gained 31.1% (16.9% and 12.1% in the first and second quarters, respectively). Within the two asset classes, “tech-enabled” businesses across sectors performed better than those whose operations relied on travel or in-person activity. Figure 1 depicts performance for the private asset classes compared to the public markets. Cambridge Associates’ mPME calculation is a private-to-public comparison that seeks to replicate private investment performance under public market conditions.

First Half 2021 Highlights

As of June 30, 2021, the private equity benchmark had outperformed the public indexes in all but one time period, the one-year horizon versus the small-cap index (the Russell 2000®). With its strong recent performance, the venture capital index has overtaken the public indexes in all time periods but one, the 20-year horizon against the NASDAQ Composite.

Within the indexes, public companies accounted for a larger portion of venture capital than of private equity (about 17% and less than 14%, respectively). In contrast, non-US companies have typically represented a larger portion of the private equity index than of the venture capital one, and, while these exposures have remained stable over time, there was a recent small uptick in both indexes (reaching almost 20% in private equity and more than 11% in venture capital).

US Private Equity Performance Insights

Vintage Years

As of June 2021, nine vintage years (2011–19) were meaningfully sized—representing at least 5% of the benchmark’s value—and, combined, accounted for 88% of the index’s value. Six-month returns among the meaningfully sized vintages were all in the double digits, ranging from 17.6% for vintage year 2013 to 34.8% for vintage year 2019 (Figure 2). The 14-year-“old” 2007 vintage represented 4.5% of the index’s value, falling shy of meaningfully sized for the first time in years. On the other hand, the inclusion of the 2019 vintage speaks to the speed with which managers are deploying capital.

While valuations went up across all sectors for the top-performing vintages (2019 and 2015), healthcare and IT companies rose above the rest in both; financials were also a key return driver in the 2015 fund group. In the lowest-returning vintage (2013), IT companies were by far the largest positive contributor and performance for healthcare trailed the higher returning vintages and the index at large. For further context, while IT performed well in the 2013 vintage, its return of 26.8% for the six months is much lower than the IT results in the stronger performing vintages (which were 51.9% and 37.0% for the 2015 and 2019 vintages, respectively).

Limited partner (LP) cash flows have been at historic highs in 2021. During the first two quarters of the year, fund managers distributed $87.9 billion and called $77.4 billion, which is the second highest amount of distributions and the highest level of capital calls for any six-month period ever. The “best” six-month period for distributions was the one ended in March 2021.

Four vintage years (2017–20) represented 87% ($67.5 billion) of the capital calls, with each drawing down at least $10 billion in first half 2021. Distributions were less concentrated, with nine vintage years (2006–07, 2011–17) each returning $4.6 billion or more, for a total of $74.1 billion (or 84% of the total). The 2014 and 2015 vintages alone distributed nearly $25 billion.

Sectors

Figure 3 shows the Global Industry Classification Standard (GICS®) sector breakdown by market value of the private equity index and a public market counterpart, the Russell 2000® Index. The comparison provides context when comparing the performance of the two indexes. The largest differences are in IT, where the private equity index’s exposure is nearly 3.0 times that of the Russell 2000® Index, and in financials, where the private equity index’s weight is about half of the public index’s weight. The chart also highlights less meaningful differences by weight in healthcare, consumer discretionary, communication services, and real estate, which are reflected in the “other” sector bucket.

As of June 2021, among the six meaningfully sized sectors, IT remained the largest by a wide margin, representing almost 36% of the index’s value. This is more than double the next largest sector, healthcare, which also includes businesses considered to be technology or “tech enabled.” First half returns for the six sectors ranged from 17.2% (communication services) to 36.7% (healthcare) (Figure 4). Write-ups for healthcare companies were widespread, with multiple vintages earning 50% plus returns on their investments in the sector during the period. Write-ups in communication services (the smallest of the key sectors) were also widespread but much more muted than in healthcare, except for vintage year 2019, which returned over 81%. Consumer staples, the next-largest sector (excluded from Figure 4), continued to perform well amid the ongoing pandemic, posting a six-month return of 23.1%.

Investment activity in first half 2021 was dominated by four sectors. IT (46%), healthcare (12%), industrials (11%), and consumer discretionary (10%) attracted almost 80% of the capital invested, which is about 14 percentage points higher than the investments in these sectors over the long term. Driving the difference is the percentage of capital allocated to IT, which historically was about 24% of invested capital.

US Venture Capital Performance Insights

Vintage Years

As of June 2021, nine vintage years (2010, 2012–19) were meaningfully sized and, combined, accounted for 76% of the index’s value. Performance among the key vintages was strong; only three posted results below 30%. The “oldest” vintage in the cohort, 2010, earned the lowest return (21.2%), and the 2016 vintage beat out the 2012 group for the best return (gaining 42.8% versus 42.5% for the 2012 funds) (Figure 5). With double-digit returns in each of the first two quarters of 2021, the US venture capital index has now posted four such quarters in a row for the first time since the late 1990s.

For the best-performing vintage (2016), IT, healthcare, financials, and communication services companies earned outsized returns, but by dollars, IT and healthcare had much larger impacts. In the second-best and lowest-performing vintages, 2012 and 2010, respectively, IT companies were hands down the largest positive performance driver.

In venture capital, as with private equity, LP cash flows have been at a historic level in 2021. In the first half of the year, managers called $19 billion (split equally between the two quarters) and distributed $40.4 billion (nearly $25 billion in the second quarter alone); that distribution amount was the highest for any six-month period ever and the calls were second only to the six months ended March 31, 2021. The only other time that the ratio of distributions to calls reached or exceeded 2 times was a few instances in the 1990s and in 2000.

Funds formed from 2017 to 2020 were responsible for almost 90% ($17 billion) of the total capital called during the first six months. Three of the four vintages (2018–20) each called more than $4.1 billion; the 2020 vintage led the way with capital calls of nearly $5.9 billion. Significant distributions were widespread, but the largest amounts were concentrated. While there were 11 vintages (2006–08, 2010–17) that distributed at least $1.1 billion (including three that are at least 13 years “old”), three vintage years (2011 and 2013–14) represented nearly 50% of the total distributions. Each of those three returned more than $6 billion to LPs during the first two quarters.

Sectors

Figure 6 shows the GICS® sector breakdown of the venture capital index by market value and a public market counterpart, the NASDAQ Composite Index. The breakdown provides context when comparing the performance of the two indexes. The chart highlights the venture index’s significant relative overweight in healthcare and substantial underweights in consumer discretionary and communication services.

Collectively, the four meaningfully sized sectors made up 84% of the index (Figure 7). Performance among the four ranged from 23.3% for healthcare to 43.4% for communication services (which includes many tech-enabled businesses). The IT sector came in a close second with a six-month return of 41.9% followed by consumer discretionary (29.6%), which also benefited from tech-enabled companies. Together, the two next- largest sectors, industrials and financials, accounted for about 9% of the index’s value; financials was the best-performing sector across the index. The communication services return was driven mostly by three vintages, 2014, 2016, and 2018, with the latter two posting IRRs in the 70% range. IT company performance was strong across the vintages, with 2012 and 2016 leading the pack. In the healthcare sector, the largest vintage by market value (2016) was also among its best performing, earning about 47% on its investments in the sector.

In line with long-term norms, during the first six months, venture capital managers in the index allocated slightly more than 70% of their invested capital to IT and healthcare investments (in rank order). Other sectors, including communication services, consumer discretionary, and financials, all attracted at least 5% of the capital invested during the period. ■

Figure Notes

US Private Equity and Venture Capital Index Returns

Private indexes are pooled horizon internal rates of return, net of fees, expenses, and carried interest. Returns are annualized, with the exception of returns less than one year, which are cumulative. Because the US private equity and venture capital indexes are capitalization weighted, the largest vintage years mainly drive the indexes’ performance.

Public index returns are shown as both time-weighted returns (average annual compound returns) and dollar-weighted returns (mPME). The CA Modified Public Market Equivalent replicates private investment performance under public market conditions. The public index’s shares are purchased 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.

Vintage Year Returns

Vintage year fund-level returns are net of fees, expenses, and carried interest.

Sector Returns

Industry-specific gross company-level returns are before fees, expenses, and carried interest.

GICS® Sector Comparisons

The Global Industry Classification Standard (GICS®) was developed by and is the exclusive property and a service mark of MSCI Inc. and S&P Global Market Intelligence LLC and is licensed for use by Cambridge Associates LLC. The Nasdaq Composite exposures are as of June 30, 2021, and represent the index’s sector breakdown prior to the GICS® reclassification that went into effect after close of business (ET) September 28, 2018. Cambridge Associates LLC will implement the GICS® reclassification for private companies with the release of September 30, 2018, benchmark data. “Other” includes sectors that make up less than 3% of the CA benchmark.

About the Cambridge Associates LLC Indexes

Cambridge Associates derives its US private equity benchmark from the financial information contained in its proprietary database of private equity funds. As of June 30, 2021, the database included 1,297 US buyouts and growth equity funds formed from 1986 to 2021, with a value of $1.2 trillion. Ten years ago, as of June 30, 2011, the index included 770 funds whose value was $459 billion.

Cambridge Associates derives its US venture capital benchmark from the financial information contained in its proprietary database of venture capital funds. As of June 30, 2021, the database comprised 2,077 US venture capital funds formed from 1981 to 2021, with a value of $499 billion. Ten years ago, as of June 30, 2011, the index included 1,343 funds whose value was $122 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 the Public Indexes

The Nasdaq Composite Index is a broad-based index that measures all securities (more than 3,000) listed on the Nasdaq Stock Market. The Nasdaq Composite is calculated under a market capitalization–
weighted methodology. The Russell 2000® Index includes the smallest 2,000 companies of the Russell 3000® Index (which is composed of the largest 3,000 companies by market capitalization).The Standard & Poor’s 500 Composite Stock Price Index is a capitalization-weighted index of 500 stocks intended to be a representative sample of leading companies in leading industries within the US economy. Stocks in the index are chosen for market size, liquidity, and industry group representation.

 

Caryn Slotsky, Senior Investment Director
Wyatt Yasinski, Investment Associate
Drew Carneal, Investment Analyst

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