Commentaries

US PE/VC Benchmark Commentary
Second Quarter 2019 Download Report

For first half 2019, US private equity and venture capital produced double-digit returns, as indicated by the Cambridge Associates LLC benchmark indexes.

For first half 2019, US private equity 1 and venture capital produced double-digit returns, as indicated by the Cambridge Associates LLC benchmark indexes. The Cambridge Associates LLC US Private Equity Index® returned 10.6% from January through June (5.6% and 4.7% for first quarter and second quarter, respectively), a significant improvement over the previous six-month period. The Cambridge Associates LLC US Venture Capital Index® returned 13.8% for the same period (6.5% and 6.9% for first quarter and second quarter, respectively), a jump from the prior six months when US venture capital earned 7.1%. During first half 2019, public companies generally rebounded from their fourth quarter losses, led by technology and large-cap businesses. 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.

FIGURE 1 US PRIVATE EQUITY AND VENTURE CAPITAL INDEX RETURNS
Periods Ended June 30, 2019 • Percent (%)

FIGURE 1 US PRIVATE EQUITY AND VENTURE CAPITAL INDEX RETURNS. Periods Ended June 30, 2019 • Percent (%)

* Includes US buyout and growth equity funds only.
** Data from 1/1/1986 to 10/31/2003 represented by the Nasdaq Price Index; data from 11/1/2003 to present by the Nasdaq Composite.
*** Capital change only.
Sources: Cambridge Associates LLC, Frank Russell Company, FTSE International Limited, Nasdaq, Standard & Poor’s, and Thomson
Reuters Datastream.

First Half 2019 Highlights

  • As of June 30, 2019, except for the most recent six-month period, the private equity benchmark had outperformed the public indexes in all time periods. The venture capital index had mixed success against the various public market indexes in periods of ten years or less, but outperformed in the longer time periods listed in the table. The US VC index struggled most to beat the NASDAQ composite, reflecting the strong performance of IT in the public markets.
  • Public companies accounted for similar proportions of the private equity and venture capital indexes (11% to 12%). Non-US company exposures in the private equity and venture capital indexes have remained stable, roughly 18% in the private equity benchmark and around 10% in the venture capital benchmark as of June 30, 2019.

US Private Equity Performance Insights

Vintage Years

As of June 2019, seven vintage years were meaningfully sized—representing at least 5% of the benchmark’s value—and, combined, accounted for almost 80% of the index’s value. Six-month returns among the meaningfully sized vintages ranged from 8.9% for vintage year 2011 to 16.4% for vintage year 2016 (Figure 2). Despite its “age,” the 2007 vintage year still represented one of the largest components of the index.

FIGURE 2 US PRIVATE EQUITY INDEX VINTAGE YEAR RETURNS:
NET FUND–LEVEL PERFORMANCE

As of June 30, 2019 • USD Terms • Percent (%)

FIGURE 2 US PRIVATE EQUITY INDEX VINTAGE YEAR RETURNS: NET FUND–LEVEL PERFORMANCE. As of June 30, 2019 • USD Terms • Percent (%)

Source: Cambridge Associates LLC.

IT and industrials were instrumental in driving performance for vintages 2016 and 2011, and healthcare was also a key contributor to the best-performing 2016 vintage. Since its inception, the 2011 vintage has invested nearly equal amounts in three key sectors, IT, industrials, and consumer discretionary. The 2016 vintage, since its inception, has invested nearly three times as much in IT as in the next largest sector, industrials.

During the first two quarters of 2019, fund managers called and distributed less capital than they did in the previous six months. Capital calls totaled $51.7 billion, a 6% decrease, while distributions equaled $54.7 billion, an 18% decline from the six months ended December 2018. Aggregate cash flow amounts dropped from the fourth quarter to the first and again from the first to the second, with distributions declining more in the first quarter and calls declining more in the second. As they decreased in aggregate, cash flows also moved closer to a state of equilibrium, as the difference between calls and distributions was less than a billion dollars in the second quarter. Despite representing the smallest margin of difference in three years, it still extends the seven-and-a-half year trend of distributions outpacing contributions.

Capital calls were largely concentrated among five vintage years (2014–18), each of which drew down at least $7.7 billion in first half 2019; as a group, they called $46.5 billion and accounted for 90% of the capital drawn during the period. Distributions were more widespread, with 11 vintage years (2005–15) each returning $2.3 billion or more for a total of $51.3 billion.

Sectors

Figure 3 shows the GICS sector breakdown of the private equity index and a public market counterpart, the Russell 2000® Index. The breakdown provides context when comparing the performance of the two indexes. The private equity index’s most significant overweight and underweight are in IT and financials, respectively. The chart also highlights less meaningful PE overweights in communication services and consumer discretionary and the underweight in real estate, which is reflected in the “other” sector bucket.

FIGURE 3 GICS SECTOR COMPARISONS: CA US PRIVATE EQUITY VS RUSSELL 2000®. As of June 30, 2019 • Percent (%) FIGURE 3 GICS SECTOR COMPARISONS: CA US PRIVATE EQUITY VS RUSSELL 2000®
As of June 30, 2019 • Percent (%)[/caption]

* The private equity index includes only buyout and growth equity funds.
Sources: Cambridge Associates LLC, Frank Russell Company, and FTSE International Limited.

As of June 2019, there were six meaningfully sized sectors; IT was by far the largest, representing nearly a third of the index’s value at mid-year. Six-month returns among the six sectors ranged from 6.4% (communication services) to 17.4% (IT) (Figure 4). Write-ups for IT companies were widespread and by dollar, led by vintages 2007 and 2014–2016. IT performance was similarly strong in the public markets. In communication services (the smallest of the key sectors), write-ups were relatively modest, with vintage year 2012 seeing the highest amount of writeups.

FIGURE 4 US PRIVATE EQUITY INDEX GICS SECTOR RETURNS: NET FUND-LEVEL PERFORMANCE. As of June 30, 2019 • USD Terms • Percent (%)
FIGURE 4 US PRIVATE EQUITY INDEX GICS SECTOR RETURNS:
NET FUND-LEVEL PERFORMANCE

As of June 30, 2019 • USD Terms • Percent (%)

Source: Cambridge Associates LLC.

Four sectors dominated investment activity in first half 2019. IT (42%), healthcare (12%), consumer discretionary (12%), and industrials (10%) attracted more than 75% of the capital invested, which is about 11 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 22% of invested capital.

US Venture Capital Performance Insights

Vintage Years

Venture managers returned 13.8% for the first six months of 2019 with all meaningfully sized vintage years, 2007–08 and 2010–16, earning positive returns for the period (Figure 5). Eight of the nine large vintages—2007 and 2010–16—posted double-digit returns, with 2011 returning the highest (19.1%). First half 2019 performance was much stronger than that of the last six months of 2018, when the benchmark returned 7.1%.

FIGURE 5 US VENTURE CAPITAL INDEX VINTAGE YEAR RETURNS: NET FUND–LEVEL PERFORMANCE. As of June 30, 2019 • USD Terms • Percent (%)
FIGURE 5 US VENTURE CAPITAL INDEX VINTAGE YEAR RETURNS:
NET FUND–LEVEL PERFORMANCE

As of June 30, 2019 • USD Terms • Percent (%)

Source: Cambridge Associates LLC.

IT company valuation changes were the primary drivers of the semi-annual returns for all meaningfully sized vintage years except 2008. Vintage year 2011, the best-performing vintage, enjoyed significant write-ups in IT and healthcare; however, IT valuations were responsible for a disproportionate share of the vintage’s valuation increase. For vintage year 2008, the lowest performing of the group, healthcare and consumer discretionary valuations drove returns. For the 2014 vintage (the largest in the index), significant write-ups in IT and healthcare were the largest contributors.

Venture capital fund managers called $11.2 billion from investors during the first six months, a 3% decrease from the last six months of 2018 but still the fourth largest semi-annual inflow. The only half-year time periods that eclipse the past two occurred in 2000. Distributions from venture funds were $17.7 billion, almost a 26% increase from second half 2018, and the third largest semi-annual output since the inception of the benchmark. Total fund-level cash flows (contributions plus distributions) were the third highest for any six-month period in the history of the index, a figure that has experienced a primarily upward trend since the most recent low in first half 2003. Additionally, net cash flows—a measure that tends to be cyclical—have seen an increasing trend recently, with the difference between distributions and contributions reaching its widest level since first half 2015.

Funds formed from 2015 to 2018 were responsible for 84% ($9.4 billion) of the total capital called during the first six months. These four vintage years each called more than $1.1 billion; the 2018 vintage led the way with capital calls of more than $3.0 billion. Distributions from vintage years 2005–08, 2010, and 2012–14 totaled $12.9 billion, representing almost 73% of the total of the semi-annual period. These eight vintages each distributed an average of about $1.6 billion in the first six months, and the two vintage years with the largest distributions, 2007 and 2008, accounted for 29% of all distributions over the semi-annual period.

Sectors

Figure 6 shows the GICS sector breakdown of the venture capital index 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 relative overweights in healthcare and IT, and its underweights in consumer discretionary, communication services, and financials.

FIGURE 6 GICS SECTOR COMPARISONS: CA US VENTURE CAPITAL VS NASDAQ COMPOSITE. As of June 30, 2019 • Percent (%)
FIGURE 6 GICS SECTOR COMPARISONS: CA US VENTURE CAPITAL VS NASDAQ COMPOSITE
As of June 30, 2019 • Percent (%)

Source: Cambridge Associates LLC, Nasdaq, and Factset Research Systems.

All four meaningfully sized sectors had positive returns in first half 2019, and collectively these sectors make up more than 85% of the index (Figure 7). IT earned the best return (20.7%), beating out strong performance from the healthcare sector (16.6%), while consumer discretionary and communication services companies posted more middling returns, at 11.5% and 9.7%, respectively. The IT return was mostly driven by write-ups in the 2007, 2011, 2010, and 2012–14, and 2016 vintage year funds (in rank order) which, combined, represented about three fourths of the sector’s write-ups. Despite its “age,” the 2005 vintage saw meaningful write-ups over the period. Healthcare valuation increases were concentrated in four vintages, 2013–16. Consumer discretionary was relatively flat across all vintages with the exception of 2012 and 2014, which each saw meaningful write-ups in the sector. Write-ups in communication services were most prominent in 2014 vintage funds.

FIGURE 7 US VENTURE CAPITAL INDEX GICS SECTOR RETURNS: GROSS COMPANY–LEVEL PERFORMANCE. As of June 30, 2019 • USD Terms • Percent (%)
FIGURE 7 US VENTURE CAPITAL INDEX GICS SECTOR RETURNS:
GROSS COMPANY–LEVEL PERFORMANCE

As of June 30, 2019 • USD Terms • Percent (%)

Source: Cambridge Associates LLC.

During the first six months, venture capital managers in the index allocated the lion’s share of their capital to investments in IT and healthcare companies (in rank order). These two sectors have garnered about 74% of the capital invested over both the period and the long term. The other two sectors that attracted meaningful capital in 2019 were consumer discretionary and communication services.


Caryn Slotsky, Senior Investment Director
Sarah Grifferty, Senior Investment Associate
Wyatt Yasinski, Investment Associate

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, 2019, the database included 1,154 US buyouts and growth equity funds formed from 1986 to 2019, with a value of $686 billion. Ten years ago, as of June 30, 2009, the index included 730 funds whose value was $286 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, 2019, the database comprised 1,879 US venture capital funds formed from 1981 to 2019, with a value of $266 billion. Ten years ago, as of June 30, 2009, the index included 1,303 funds whose value was $85 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 (over 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.

Notes:

  1. The CA Private Equity Index includes US buyout and growth equity funds.
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Past Reports
Global ex US PE/VC Benchmark Commentary
Second Quarter 2019 Download Report

The developed and emerging markets PE/VC indexes have outperformed their public market counterparts across time (based on modified public market equivalent returns).

In the first six months of 2019, in USD terms, the Cambridge Associates LLC Developed Markets ex US Private Equity and Venture Capital (PE/VC) Index returned 9.7%, following strong performance in both the first and second quarters (3.6% and 5.9%, respectively). The Cambridge Associates LLC Emerging Markets Private Equity and Venture Capital Index earned 5.8%, with a much stronger first quarter than second (4.3% and 1.4%, respectively). Because the indexes’ returns are measured in US dollars, the currency’s value vis-à-vis the euro impacts performance. During first quarter 2019, the US dollar strengthened, which hurt the return in USD terms, while the dollar weakened by the end of second quarter, boosting performance measured in USD terms (Figure 1). The developed and emerging markets PE/VC indexes have outperformed their public market counterparts across time (based on modified public market equivalent [mPME] returns).

First Half 2019 Highlights

  • Except for first half 2019, the developed ex US and emerging markets PE/VC indexes outperformed the comparable public equity indexes (MSCI EAFE and Emerging Markets Indexes), based on mPME returns, for all time periods ending June 30, 2019, listed in Figure 1. The emerging markets PE/VC index has had slightly less success against the MSCI All Country World Index, equaling or outperforming in all but two time periods (first half 2019 and three years ending June 2019).
  • Based on market values at June 30, 2019, public companies accounted for more than 7% of the developed markets PE/VC index and about 18% of the emerging markets PE/VC index.

FIGURE 1 GLOBAL EX US PRIVATE EQUITY AND VENTURE CAPITAL INDEX RETURNS
Periods Ended June 30, 2019 • Percent (%)

FIGURE 1 GLOBAL EX US PRIVATE EQUITY AND VENTURE CAPITAL INDEX RETURNS. Periods Ended June 30, 2019 • 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.

Developed ex US Markets Private Equity and Venture Capital Performance Insights

Vintage Years

During the first six months of 2019, six of the eight meaningfully sized vintage years (those that represented at least 5% of the index’s value) earned positive double-digit returns; the two exceptions were vintages 2006 and 2007. Combined, the eight vintages accounted for more than 84% of the benchmark’s value (Figure 2) and returns ranged from 5.2% (2006) to 15.2% (2010) for the two-quarter period. Write-ups for consumer discretionary companies were by far the largest positive contributor to the 2006 and 2010 vintage years’ performance. The 2010 vintage’s return was dampened by write-downs in healthcare. In the largest vintage, 2012, write-ups were dominated by four of the large sectors, IT, healthcare, industrials, and consumer discretionary (in rank order).

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

As of June 30, 2019 • USD Terms • Percent (%)

FIGURE 2 DEVELOPED MARKETS EX US PE/VC INDEX VINTAGE YEAR RETURNS: NET FUND–LEVEL PERFORMANCE. As of June 30, 2019 • USD Terms • Percent (%)

Source: Cambridge Associates LLC.

Compared with the previous six-month period (July 2018 – December 2018), limited partner (LP) contribution and distribution amounts were both lower in first half 2019, more dramatically so for contributions than distributions (the same pattern of cash flows was seen from second half 2017 to first half 2018). Developed markets PE/VC funds called $13.4 billion from investors, a 34% drop, and distributions totaled $24.5 billion, a 16% decline. Distributions outpaced contributions in 31 of the 34 quarters since the beginning of 2011.

Managers of funds raised from 2013 to 2018 called $12.5 billion, or 94% of the total capital called during the first two quarters. Among those vintages, two, 2016 and 2017, called more than $3.0 billion. Six vintages, 2007–08 and 2010–13, each distributed at least $2.0 billion for a combined amount of $20.7 billion (84% of total distributions). The 2007 vintage year led the way, distributing almost $6 billion.

Sectors

Figure 3 shows the GICS sector breakdown of the Developed ex US Markets Private Equity and Venture Capital Index and a public market counterpart, the MSCI EAFE Index. The breakdown provides context when comparing the performance of the two indexes. The chart highlights fairly significant differences between the two indexes, including relative overweights in the PE/VC index in consumer discretionary, IT, healthcare, communication services, and industrials. The underweights include financials, consumer staples, and real assets (energy and real estate, which are part of the “other” category).

FIGURE 3 GICS SECTOR COMPARISONS: CA DEVELOPED MARKETS EX US PE/VC VS MSCI EAFE
As of June 30, 2019 • Percent (%)

FIGURE 3 GICS SECTOR COMPARISONS: CA DEVELOPED MARKETS EX US PE/VC VS MSCI EAFE. As of June 30, 2019 • Percent (%)

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

All eight meaningfully sized sectors earned positive returns for first half 2019 in both USD and euro terms, with performance in euros being the marginally stronger of the two (Figure 4). Among the key sectors, IT earned by far the highest return and communication services the lowest. No key vintage year suffered losses in the IT sector; the 2007 and 2012 vintages had the largest increases. The communication services sector return resulted from muted write-ups in most vintages and write-downs in the 2007 and 2010 groups. The four largest sectors—consumer discretionary, IT, healthcare, and industrials (in rank order)—represented 71% of the index’s value and, on a USD-weighted basis, returned 10.0%.

FIGURE 4 DEVELOPED MARKETS EX US PE/VC INDEX SECTOR RETURNS:
GROSS COMPANY–LEVEL PERFORMANCE

As of June 30, 2019 • Percent (%)

FIGURE 4 DEVELOPED MARKETS EX US PE/VC INDEX SECTOR RETURNS: GROSS COMPANY–LEVEL PERFORMANCE. As of June 30, 2019 • Percent (%)

Source: Cambridge Associates LLC.

More than 90% of the capital invested by the managers in first half 2019 was allocated to consumer (discretionary and staples combined), IT, industrials, healthcare, and financials companies (in rank order). Over the long term, these sectors have attracted about 80% of invested capital; IT company investments account for nearly all the difference.

Countries

In USD terms, four of the seven meaningfully sized countries in the index (accounting for 72% of its value) posted double-digit positive returns during the first two quarters (Figure 5); as with the sectors, returns in euro terms were slightly higher. Companies based in the Netherlands (a top performer since the middle of 2017) were again the best performing, with three vintages, 2006, 2007, and 2013, contributing the most to returns. For French companies—the worst performers among the large countries—write-ups, highest in the 2007 and 2016 vintages, were partially offset by considerable write-downs in the 2010 vintage. For the six-month period, the gross dollar-weighted return for the three largest countries—the United States, the United Kingdom, and Germany—was 9.7%, about 100 basis points higher than the index’s total gross return.

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

As of June 30, 2019 • Percent (%)

FIGURE 5 DEVELOPED MARKETS EX US PE/VC INDEX COUNTRY RETURNS: GROSS COMPANY-LEVEL PERFORMANCE. As of June 30, 2019 • Percent (%)

Source: Cambridge Associates LLC.

Companies in developed European countries attracted 78% of the capital invested during the first two quarters, equaling the long-term norm for the region. Businesses in the United States garnered about 15% of the capital invested, which is a few percentage points higher than its long-term allocation.

Emerging Markets Private Equity and Venture Capital Performance Insights

Vintage Years

During the first six months, there were nine vintage years (2007, 2008, 2010–16) that accounted for at least 5% of the emerging markets index’s value; combined, the nine represented 87% of the index’s value (Figure 6). Eight of the nine vintages produced positive returns for first half 2019, contributing to solid year-to-date performance (5.8%). Performance varied among the large vintages, with returns ranging from -3.9% (2008) to 10.8% (2016).

FIGURE 6 EMERGING MARKETS PE/VC INDEX VINTAGE YEAR RETURNS:
NET FUND-LEVEL PERFORMANCE

As of June 30, 2019 • USD Terms • Percent (%)

FIGURE 6 EMERGING MARKETS PE/VC INDEX VINTAGE YEAR RETURNS: NET FUND-LEVEL PERFORMANCE. As of June 30, 2019 • USD Terms • Percent (%)

Source: Cambridge Associates LLC.

Write-ups in IT and materials were the main drivers for the best-performing vintage, 2016. The lowest-returning vintage, 2008, was impacted by write-offs in most sectors, but most notably IT. At the close of first half 2019, the largest vintage year was 2014, representing almost 15% of the index. It posted an 8.1% return, the second highest among the nine major vintages, and write-ups were widespread in first half 2019, most notably in consumer discretionary and IT. In 2018, this vintage also produced the best return, topping 34.6% for the calendar year.

During first half 2019, emerging markets PE/VC funds called $11.3 billion from investors, nearly a 25% decrease from the prior six-month period but slightly above the ten-year semi-annual average of $10.2 billion. Managers distributed just less than $10.5 billion year-to-date, matching the distribution total in the prior six-month period. Distributions were in the top ten of largest sums for any six-month period since the inception of the index in 1986—all ten occurred in the past six years. Since 1986, distributions have outpaced contributions in approximately 14% of the semi-annual periods, and in the past five years they have outpaced contributions in 30% of the semi-annual periods. Yet, in the past four years, distributions have outpaced contributions in only one first or second half-year period.

Managers of funds that were raised in 2015–18 called most of the capital in first half 2019, totaling almost $9.0 billion and about 80% of all capital called year-to-date. These four vintages, in the prime of their investment periods, called more than $1.3 billion each, and the 2016 vintage called the most at $4.1 billion. On the distributions front, managers with funds raised in four vintages (2007 and 2012–14) returned at least $1.0 billion to LPs, for a combined total of $6.4 billion, or 61% of the period’s total. Funds in the 2014 vintage, the largest vintage of those meaningfully sized, returned the most capital, topping $2.1 billion for first half 2019.

Sectors

Figure 7 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 significant overweights in the PE/VC index, such as healthcare, consumer discretionary, and IT, with a more modest difference in industrials. Underweights are most significant in financials, with smaller underweights in energy and materials.

FIGURE 7 GICS SECTOR COMPARISONS: CA EMERGING MARKETS PE/VC VS MSCI
EMERGING MARKETS

As of June 30, 2019 • Percent (%)

FIGURE 7 GICS SECTOR COMPARISONS: CA EMERGING MARKETS PE/VC VS MSCI EMERGING MARKETS. As of June 30, 2019 • 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 first half returns (Figure 8). Consumer staples returned the best at 14.1% for the period, trailed closely by communication services, which returned 11.8%. In first half 2019, just shy of 70% of the consumer staples write-ups were attributed to investments made by funds formed in 2007 and 2011. The remaining five sectors experienced middling returns ranging from 2.6% (IT) to 6.8% (consumer discretionary). On a gross, dollar-weighted basis, the three largest sectors by market value—consumer discretionary, IT, and healthcare—returned 5.0% during first half 2019, underperforming the return for all companies by more than 180 basis points. The sectors outside of the three largest returned 9.0% during the same period.

FIGURE 8 EMERGING MARKETS PE/VC INDEX SECTOR RETURNS:
GROSS COMPANY-LEVEL PERFORMANCE

As of June 30, 2019 • USD Terms • Percent (%)

FIGURE 8 EMERGING MARKETS PE/VC INDEX SECTOR RETURNS: GROSS COMPANY-LEVEL PERFORMANCE. As of June 30, 2019 • USD Terms • Percent (%)

Source: Cambridge Associates LLC.

Compared with second half 2018, the investment pace in this period was slightly slower (a decrease of about 20%). Companies across five sectors (in rank order: consumer discretionary, healthcare, industrials, financials, and consumer staples) garnered 73% of the capital invested in the first six months of 2019, with consumer discretionary, healthcare, and industrials alone attracting more than 53% of all capital. Over the long term, managers in the emerging markets index have allocated 43% of their capital to these three sectors, with consumer discretionary accounting for the biggest difference between the current six months (25%) and the long-term norm (21%). Notably, investment into IT companies was slow in the first six months, with companies attracting only 9% of the total invested capital, compared to the long-term norm of 13%. Since 2016, IT has attracted at or above the long-term average.

Countries

Highlighting the index’s geographic concentration, China remains, by far, the largest country component of the index (Figure 9). India and South Korea continue as constituents in the meaningfully sized group, and the United States is a new and growing addition as of 2018, composing 6.5% of the index. Five other countries—Australia, Brazil, Hong Kong, Japan, and Singapore—represented between 2.1% and 4.0% of the index.

FIGURE 9 EMERGING MARKETS PE/VC INDEX COUNTRY RETURNS:
GROSS COMPANY-LEVEL PERFORMANCE

As of June 30, 2019 • USD Terms • Percent (%)[

FIGURE 9 EMERGING MARKETS PE/VC INDEX COUNTRY RETURNS: GROSS COMPANY-LEVEL PERFORMANCE. As of June 30, 2019 • USD Terms • Percent (%)

Source: Cambridge Associates LLC.

China-based companies again received more capital than any other country, 33% of invested capital. India attracted the second-highest amount of capital year-to-date, roughly 11% of all invested capital, with Japan following close behind at 10% of all invested capital. Japan marks the biggest increase in invested capital this period compared to the long-term average of 4%, and China saw a slight decrease over the 36% long-term average.

On a gross dollar-weighted basis, when combined, companies based in China, India, South Korea, and the United States returned 7.4%, beating out the full index by less than 100 basis points in first half 2019.


Caryn Slotsky, Senior Investment Director
Sarah Grifferty, Senior Investment Associate
Wyatt Yasinski, Investment Associate

 

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 Returns
Industry-specific gross company-level returns are before fees, expenses, and carried interest.
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 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, 2019, the database comprised 839 global ex US developed markets buyouts, growth equity, and venture capital funds formed from 1986 to 2019 with a value of about $266 billion. Ten years ago, as of June 30, 2009, the benchmark index included 535 global ex US developed markets funds, whose value was roughly $144 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 June 30, 2019, the database comprised 674 emerging markets private equity and venture capital funds formed from 1986 to 2019 with a value of about $244 billion. Ten years ago, as of June 30, 2009, the benchmark index included 387 emerging markets funds, whose value was about $50 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 June 30, 2019, 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 June 30, 2019, 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 June 30, 2019, 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 June 30, 2019, it included 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.

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