Commentaries

US PE/VC Benchmark Commentary
Third Quarter 2017 Download Report

Over the first nine months of 2017, US private equity quarterly returns were more consistent than those for US venture capital, as indicated by the Cambridge Associates LLC benchmark indexes of the two alternative asset classes. In third quarter 2017, the Cambridge Associates LLC US Private Equity Index® returned 3.9%, matching or beating the previous two quarters to bring its year-to-date return to 11.7%. The Cambridge Associates LLC US Venture Capital Index® returned 3.2% for third quarter, an increase from a weak second quarter; the venture index’s year-to-date performance was 8.1%. In the public markets, the Russell 2000® (small cap) and the tech-heavy Nasdaq outperformed the S&P 500 during the quarter. 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.

Overview

Over the first nine months of 2017, US private equity quarterly returns were more consistent than those for US venture capital, as indicated by the Cambridge Associates LLC benchmark indexes of the two alternative asset classes. In third quarter 2017, the Cambridge Associates LLC US Private Equity Index® returned 3.9%, matching or beating the previous two quarters to bring its year-to-date return to 11.7%. The Cambridge Associates LLC US Venture Capital Index® returned 3.2% for third quarter, an increase from a weak second quarter; the venture index’s year-to-date performance was 8.1%. In the public markets, the Russell 2000® (small cap) and the tech-heavy Nasdaq outperformed the S&P 500 during the quarter. 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 September 30, 2017 • Percent (%)
FIGURE 1  US PRIVATE EQUITY AND VENTURE CAPITAL INDEX RETURNS
Periods Ended September 30, 2017 • Percent (%)

Sources: Cambridge Associates LLC, Frank Russell Company, Standard & Poor’s, and Thomson Reuters  Datastream.
Notes: 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.
* Constructed Index: Data from 1/1/1986 to 10/31/2003 represented by Nasdaq Price Index. Data from 11/1/2003 to present represented by Nasdaq Composite.
** Capital change only.

Third Quarter 2017 Highlights

  • As of September 30, 2017, the private equity benchmark had limited success against the indexes tracking both large and small public companies in the time periods from one quarter to trailing five years; it outperformed the public markets in all time periods of ten years and longer. By and large, the venture capital index has struggled to beat public indexes on an mPME basis in any time period other than the longest ones listed in Figure 1.
  • Public companies accounted for between 12% and 13% of both the private equity and venture capital indexes. Non-US company exposures in the private equity and venture capital indexes have remained fairly steady, sitting at about 17% in the private equity benchmark and a bit more than 8% in the venture capital index as of September 30, 2017.

Private Equity Performance Insights

  • By the end of third quarter 2017, eight vintage years each represented at least 5% of the benchmark’s value and, combined, accounted for 83% of the index’s value. Returns among the meaningfully sized vintages were more widely dispersed this quarter than the last, ranging from 2.4% for the 2006 vintage to 6.4% for the 2012 vintage (Figure 2). Four other vintage years—2005, 2009–10, and 2016—represented between 3.1% and 4.6% of the benchmark (for a total of more than 14%). Pre–global financial crisis funds (2005–07), which distributed nearly $15 billion to investors in third quarter, still accounted for 27% of the index at September 30, while post-crisis funds (those raised from 2010 to 2012) accounted for about 30% of the index.
FIGURE 2  PRIVATE EQUITY VINTAGE YEAR RETURNS: NET FUND-LEVEL PERFORMANCE
FIGURE 2  PRIVATE EQUITY VINTAGE YEAR RETURNS:
NET FUND-LEVEL PERFORMANCE

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

  • Industrials and IT saw the largest valuation increases in both the best- and worst-performing large vintage years. In the largest vintage, 2007, health care was the stand-out sector.
  • Fund managers called $32.6 billion in third quarter, a 22.1% increase from the previous one, while they distributed $36.5 billion, an 11.2% quarter-over-quarter decrease. Over the last seven years, distributions have outpaced contributions in 25 of 28 quarters for a distributions/contributions ratio of 1.5. In the preceding six years (2005–10), contributions outnumbered distributions at a ratio of 1.4. It would not be surprising if the cash flow pendulum began to swing back toward capital calls.
  • Seven vintage years (2007 and 2011–16) called more than $1.0 billion each (ranging from $1.0 billion to $10.0 billion) for a total of $32.2 billion, or virtually all the capital called in the quarter; the 2014 vintage called the most capital. Eleven vintages (2004–14) each distributed at least $1.2 billion, for a total of $35.2 billion. Of those distributing the most capital, four vintages, 2006–08 and 2011, stand out because they all distributed more than $3.9 billion and represented 57% of the total distributed during the quarter.
  • 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 chart highlights the private equity index’s relative overweights in energy, IT, and consumer discretionary, and the significant underweight in financials.
FIGURE 3  GICS SECTOR COMPARISONS: CA US PRIVATE EQUITY VS RUSSELL 2000®. As of September 30, 2017 • Percent (%)
FIGURE 3  GICS SECTOR COMPARISONS: CA US PRIVATE EQUITY VS RUSSELL 2000®
As of September 30, 2017 • Percent (%)

Note: Other includes sectors that individually make up less than 2% of the CA benchmark.

  • During the quarter, all seven large sector index components earned positive returns (Figure 4); returns ranged from 1.9% (consumer discretionary) to 7.8% (health care). Four of the seven sectors—health care, industrials, materials, and IT (in rank order)—rose more than 6.4%. Vintage year 2007 contributed most to the health care sector’s strong return, while most vintages had more middling performance (both positive and negative) in the consumer discretionary sector.
FIGURE 4  PRIVATE EQUITY GICS SECTORS RETURNS: NET FUND-LEVEL PERFORMANCE
FIGURE 4  PRIVATE EQUITY GICS SECTORS RETURNS:
NET FUND-LEVEL PERFORMANCE

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

  • Five sectors—IT, consumer discretionary, energy, health care, and industrials—combined to attract 90% of the capital invested during the quarter. IT (24%), consumer discretionary (20%), and energy (20%) companies led all others. Over the long term, the five sectors have garnered 76% of the capital invested. Driving the difference between the quarter and the long-term norm are the high allocations to IT, energy, and health care and the lower than historical allocation to industrials and financials, the latter of which saw inflows at less than half its long-term pace.

Venture Capital Performance Insights

  • Nine of the ten meaningfully sized vintage years earned positive returns in third quarter 2017 (Figure 5). The lone vintage to post a negative return was 2008. Four of the large vintages—2010, 2011, 2013, and 2014—saw returns exceed 5%. Third quarter performance rebounded from the previous quarter, when only two of the nine key vintages posted returns greater than 3%. This quarter was the first time the 2015 vintage joined the group of meaningfully sized vintage years, crossing the 5% weight threshold.
FIGURE 5  VENTURE CAPITAL VINTAGE YEAR RETURNS: NET FUND-LEVEL PERFORMANCE
FIGURE 5  VENTURE CAPITAL VINTAGE YEAR RETURNS:
NET FUND-LEVEL PERFORMANCE

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

  • IT company valuation changes were the primary drivers of the quarterly returns for the best-performing vintage year, 2011, as well as the largest vintage, 2014. The 2014 group of funds also saw significant write-ups in health care, which contributed to its 5.1% quarterly gain. As for the worst-performing vintage year, 2008, health care companies drove the negative return; however, the poor performance was slightly offset by valuation increases in consumer discretionary. For the 2010 vintage, the index’s second largest and one of its best performers, performance was driven by a number of sectors.
  • Venture capital fund managers called $4.3 billion from investors during the third quarter, a 2.6% decrease from the previous one, but the seventh highest over the past five years (20 quarters). Distributions from venture funds were $5.7 billion, a 25.8% increase from the second quarter in which the amount distributed was among the lowest quarterly outputs since 2012. Third quarter distributions were much more in line with the five-year average.
  • Funds formed from 2014 to 2016 were responsible for 81% ($3.5 billion) of the total capital called during the quarter. The three vintage years each called more than $900 million; the 2014 and 2016 vintages had capital calls of more than $1.1 billion. Distributions from vintage years 2004–12 totaled $4.8 billion, representing almost 83% of the total from the quarter. All nine vintages distributed over $300 million, with four distributing over $600 million.
  • 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 health care and IT, and its considerable underweights in consumer discretionary and financials.
FIGURE 6  GICS SECTOR COMPARISONS: CA US VENTURE CAPITAL VS NASDAQ COMPOSITE. As of September 30, 2017 • Percent (%)
FIGURE 6  GICS SECTOR COMPARISONS: CA US VENTURE CAPITAL VS NASDAQ COMPOSITE
As of September 30, 2017 • Percent (%)

Note: Other includes sectors that individually make up less than 2% of the CA benchmark.

  • All three sectors that represented at least 5% of the value of the index had positive returns in third quarter (Figure 7). Health care extended its streak to its third consecutive quarter of earning the best return, while IT posted the lowest return, a mediocre 1.9%. The health care return was mostly driven by write-ups in the 2010, 2013, 2003, and 2014 vintage year funds (in rank order) which, combined, represented almost 67% of the sector’s net appreciation change. Consumer discretionary valuations were driven mostly by 2005, 2008, and 2006 (in rank order). As noted earlier, IT was the lowest returning sector where the strongest-performing vintages, 2013 and 2014, were slightly offset by the 2000 vintage year, which accounted for 58% of the sector’s net appreciation.
FIGURE 7  VENTURE CAPITAL VINTAGE YEAR RETURNS: NET FUND-LEVEL PERFORMANCE
FIGURE 7  VENTURE CAPITAL VINTAGE YEAR RETURNS:
NET FUND-LEVEL PERFORMANCE

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

  • During third quarter, venture capital managers in the index allocated the lion’s share of their investments to IT, health care, financials, and consumer discretionary companies (in rank order). Compared with long-term norms, 3.3% more capital was invested in financials while 2.6% less was invested in consumer discretionary. Health care and IT were about in line with their historical norms. At about 86% of capital invested, the amount is 1.4% less than the long-term trend for the three meaningfully size sectors combined.

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 September 30, 2017, the database comprised 1,421 US buyouts, private equity energy, growth equity, and subordinated capital funds formed from 1986 to 2017, with a value of $704 billion. Ten years ago, as of September 30, 2007, the index included 825 funds whose value was $330 billion.

Cambridge Associates derives its US venture capital benchmark from the financial information contained in its proprietary database of venture capital funds. As of September 30, 2017, the database comprised 1,762 US venture capital funds formed from 1981 to 2017, with a value of $203 billion. Ten years ago, as of September 30, 2007, the index included 1,232 funds whose value was $89 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.

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Global ex US PE/VC Benchmark Commentary
Third Quarter 2017 Download Report

In third quarter 2017, in USD terms, the Cambridge Associates LLC Global ex US Developed Markets Private Equity and Venture Capital Index (PE/VC) returned 5.4% to bring its year-to-date performance to 21.0%. The Cambridge Associates LLC Emerging Markets Private Equity and Venture Capital Index earned 4.4% in third quarter, bringing its nine-month return to 12.2%.

Overview

In third quarter 2017, in USD terms, the Cambridge Associates LLC Global ex US Developed Markets Private Equity and Venture Capital Index (PE/VC) returned 5.4% to bring its year-to-date performance to 21.0%. The Cambridge Associates LLC Emerging Markets Private Equity and Venture Capital Index earned 4.4% in third quarter, bringing its nine-month return to 12.2%. Throughout the first three quarters of 2017, the euro gained strength against the US dollar, helping to boost the developed markets index return when measured in USD terms (Figure 1). The developed markets PE/VC index has equaled or outperformed its public market counterparts across time horizons, while the emerging markets PE/VC index only trails its public market peers in the most recent time periods (based on modified public market equivalent [mPME] returns).

Third Quarter 2017 Highlights

  • The developed markets PE/VC index’s performance was equal to or better than the comparable public equity index (MSCI EAFE Index), based on mPME returns, for all time periods ending September 30, 2017, listed in Figure 1. The emerging markets PE/VC index continued its recent struggles against its corresponding public market benchmark (MSCI Emerging Markets Index) but outperformed it over the medium and long term.
  • The primary geographical components of the ex US PE/VC indexes have remained constant with Western European countries dominating the developed markets index and China, India, and South Korea continuing to represent the largest countries in the emerging markets benchmark.
  • Based on market values on September 30, 2017, public companies accounted for more of the emerging markets PE/VC index than the developed markets one, about 17% and 7%, respectively.
FIGURE 1 GLOBAL EX US DEVELOPED AND EMERGING MARKETS PE/VC INDEX RETURNS Periods Ended September 30, 2017 • Percent (%)
FIGURE 1 GLOBAL EX US DEVELOPED AND EMERGING MARKETS PE/VC INDEX RETURNS
Periods Ended September 30, 2017 • Percent (%)

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.
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 capitalization weighted, performance is mainly driven by the largest vintage years. Public index returns are shown as both timeweighted 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.
* 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.

Global ex US Developed Markets Private Eq uity and Venture Capital Performance Insights

  • During third quarter 2017, all eight meaningfully sized vintage years (those that represented at least 5% of the index’s value) earned positive returns. Combined, the eight vintages represented almost 87% of the benchmark’s value (Figure 2) and third quarter returns ranged from 0.7% to 9.0%. In addition to having healthy write-ups for consumer discretionary, financials, IT, health care, and industrials companies (in rank order), the best-performing vintage, 2014, did not have a sector suffer meaningful losses. In the lowest-performing vintage, 2010, write-downs and write-ups across sectors were essentially equal. For the largest vintage, 2012, widespread write-ups (led by IT, industrials, and materials) were partially offset by write-downs in consumer staples.
FIGURE 2 GLOBAL EX US DEVELOPED MARKETS PE/VC INDEX VINTAGE YEAR RETURNS: NET FUND-LEVEL PERFORMANCE<br />
FIGURE 2 GLOBAL EX US DEVELOPED MARKETS PE/VC INDEX
VINTAGE YEAR RETURNS: NET FUND-LEVEL PERFORMANCE
Percent (%)

Notes: Returns in USD terms. Vintage year fund-level returns are net of fees, expenses, and carried interest.

  • Limited partner (LP) contributions ($8.8 billion) were roughly equal to the previous quarter’s total ($8.6 billion) and in line with the 15-year average. At $14.0 billion for the quarter, distributions saw a quarter-over-quarter decline of about 22%. Distributions continued to outpace contributions; since the beginning of 2011, fund managers have distributed 1.7 times as much as they’ve called. Conversely, in the previous five years (2006–10), managers called 1.4 times as much capital as they distributed.
  • Managers of funds raised from 2013 to 2016 called $7.7 billion, or 88% of the total capital called during the quarter. All four vintages called more than $1.0 billion. The 2014 vintage called the most capital, $3.4 billion. Seven vintages, 2005, 2007–08, and 2010–13, each distributed more than $1.1 billion for a combined total of $12.1 billion (86% of the total); vintages 2005 and 2011 led the way with more than $2.2 billion of distributions each.
  • Figure 3 shows the GICS sector breakdown of the Global ex US Developed Markets PE/VC Index and its public market counterpart, the MSCI EAFE Index. The breakdown provides context when comparing the performance of the two indexes. The chart highlights the relative overweights in the PE/VC index, such as consumer discretionary, IT, health care, and industrials, and the underweights in financials and consumer staples.
  • All six meaningfully sized sectors earned positive returns for the quarter in both USD and euro terms, although performance was much lower in euros given the currency’s strengthening (Figure 4). Among the key sectors, IT posted the highest return and financials the lowest. The 2007 and 2012 vintages were the primary drivers of the IT sector’s performance. Write-ups for financial companies in vintages 2012–14 were partially offset by write-downs in the 2010 vintage. The four largest sectors—consumer discretionary, IT, industrials, and health care (in rank order)—represented 74% of the index’s value and, on a dollar-weighted basis, returned 7.1%.
FIGURE 3 GICS SECTOR COMPARISONS: CA GLOBAL EX US DEVELOPED MARKETS vs MSCI EAFE<br />As of September 30, 2017 • Percent (%)
FIGURE 3 GICS SECTOR COMPARISONS: CA GLOBAL EX US DEVELOPED MARKETS vs MSCI EAFE
As of September 30, 2017 • Percent (%)

Sources: Cambridge Associates LLC, FactSet Research Systems, and MSCI Inc. MSCI data provided “as is” without any express or implied warranties.
Notes: 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 2% of the CA benchmark.

 

FIGURE 4 GLOBAL EX US DEVELOPED MARKETS PE/VC INDEX SECTOR RETURNS: GROSS COMPANY-LEVEL PERFORMANCE<br />Percent (%)
FIGURE 4 GLOBAL EX US DEVELOPED MARKETS PE/VC INDEX SECTOR RETURNS:
GROSS COMPANY-LEVEL PERFORMANCE
Percent (%)

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

  • Leading all sectors, consumer (discretionary and staples combined) companies attracted almost 40% of the capital invested during the quarter. The next three largest sectors by investment were health care, IT, and industrials, which together garnered almost the same amount as the consumer companies.
  • In USD terms, all seven large countries in the index (accounting for almost 70% of its value) earned positive returns during third quarter (Figure 5); as with the sectors, returns in EUR terms were lower, most notably for US-based businesses, whose return turned negative when calculated in euros. Companies based in Germany returned 13.3% (the best among the large countries), while US companies eked out a 0.4% return (in USD terms). German IT companies helped boost the country’s return for the quarter; vintage years 2007 and 2012 were the biggest contributors to the country’s performance as a whole. For the US-based companies, solid health care performance was muted by lackluster and negative returns in the IT and consumer sectors, respectively. For the quarter, the gross dollar-weighted return for the three largest countries—the United Kingdom, the United States, and Germany—was 5.4%, about 50 basis points lower than the index’s total gross return.1
  • Companies in developed European countries attracted 70% of the capital invested during the quarter, 6% shy of the long-term norm for the region. Investment in US-based companies (almost 20% of total) was about 7% higher than what it has been historically in the global ex US manager index.

1 Funds in the global ex US developed markets PE/VC index primarily invest in companies in Europe, but occasionally make investments in US companies as well.

FIGURE 5 GLOBAL EX US DEVELOPED MARKETS PE/VC INDEX REGIONAL RETURNS: GROSS COMPANY-LEVEL PERFORMANCE<br />Percent (%)
FIGURE 5 GLOBAL EX US DEVELOPED MARKETS PE/VC INDEX REGIONAL RETURNS:
GROSS COMPANY-LEVEL PERFORMANCE
Percent (%)

Note: Geographic region–specific gross company-level returns are before fees, expenses, and carried interest.

Emerging Markets Private Equity Performance Insights

  • As of third quarter, there were nine vintage years (2007–15) that accounted for at least 5% of the index’s value; combined, the nine represented over 90% of the index’s value (Figure 6). Across the top-sized vintage years, third quarter returns were widely dispersed, ranging from 0.0% (vintage year 2008) to 12.4% (vintage 2015). Throughout 2017, vintage year 2011 was consistently the largest, representing 17% of the index’s value. Prior to 2017, the 2007 vintage was the largest.
  • Write-ups in materials and consumer staples were the main drivers for the best performing vintage, 2015—somewhat atypical sectors to be driving performance. Returns for 2015 were also boosted by the consumer discretionary sector. The lowest-returning vintage, 2008, was positively impacted by write-ups in IT but other sectors’ valuations were down or flat.
FIGURE 6 EMERGING MARKETS PE/VC INDEX VINTAGE YEAR RETURNS: NET FUND-LEVEL PERFORMANCE<br />Percent (%)
FIGURE 6 EMERGING MARKETS PE/VC INDEX VINTAGE YEAR RETURNS: NET FUND-LEVEL PERFORMANCE
Percent (%)
  • During third quarter, emerging markets PE/VC funds called $6.8 billion from investors, a greater than 41% increase from the prior quarter, making it the fourth largest quarter for capital calls since the inception of the index in 1986. Managers distributed nearly $8.8 billion this quarter, which represented a 19% quarterto-quarter increase. More significantly, third quarter distributions amounted to the largest since the inception of the index and year-to-date distributions are on track to make 2017 the best year for cash outflows. Since 1986, distributions have outpaced contributions in only 15% of the quarters, but in the past five years they have outpaced contributions in half of the quarters.
  • Managers of funds that were raised from 2012 to 2016 called about $5.9 billion or 87% of the total for the quarter; of those vintages, 2012, 2014, and 2015 all called more than $1.2 billion. On the distributions front, managers in four vintage years (2006, 2007, 2010, and 2012) returned at least $850 million to LPs, for a combined  total of almost $6.0 billion, or 68% of the quarter’s total. Distributions from the 2007 vintage led all vintages this quarter, at almost $3.0 billion, accounting for one-third of the total distributions.
  • Figure 7 shows the GICS sector breakdown of the Emerging Markets PE/VC Index and its 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, such as consumer discretionary, health care, and industrials, and the underweights in financials, energy, and materials.
FIGURE 7 GICS SECTOR COMPARISONS: CA EMERGING MARKETS vs MSCI EMERGING MARKETS<br />As of September 30, 2017 • Percent (%)
FIGURE 7 GICS SECTOR COMPARISONS:
CA EMERGING MARKETS vs MSCI EMERGING MARKETS
As of September 30, 2017 • Percent (%)

Sources: Cambridge Associates LLC, FactSet Research Systems, and MSCI Inc. MSCI data provided “as is” without any express or implied warranties.
Notes: 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 2% of the CA benchmark.

  • All six of the meaningfully sized sectors posted positive quarterly returns over 5.0% (Figure 8); returns were highest for consumer staples at 8.3%. Almost all of the consumer staples write-ups were attributed to investments made by funds formed in 2011, 2012, and 2015. Returns for the other five sectors ranged from 5.4% to 8.1%, with consumer discretionary posting the lowest return in the group. On a gross, dollar-weighted basis, the three largest sectors by market value—IT, consumer discretionary, and health care—collectively returned 5.7%, relatively on par with the gross return for all companies at 6.0%.
FIGURE 8 EMERGING MARKETS PE/VC INDEX SECTOR RETURNS: GROSS COMPANY-LEVEL PERFORMANCE<br />Percent (%)
FIGURE 8 EMERGING MARKETS PE/VC INDEX SECTOR RETURNS:
GROSS COMPANY-LEVEL PERFORMANCE
Percent (%)

Notes: Returns in USD terms. Industry-specific gross company-level returns are before fees, expenses, and carried interest.

  • Compared with second quarter, the investment pace in the third was faster (an increase of more than 50%). Companies across four sectors (in rank order: consumer discretionary, IT, health care, and financials) garnered 84% of the capital invested in the quarter; consumer discretionary and IT alone attracted nearly 58% of all capital. Over the long term, managers in the emerging markets index have allocated over 60% of their capital to these four sectors, and roughly 41% to consumer discretionary and IT.
  • Highlighting the index’s geographic concentration, China continued to be by far the largest country component of the index; India and South Korea were the only other countries that qualified as meaningfully sized (Figure 9). Four other countries—Australia, Hong Kong, Japan, and the United States—represented between 2.5% and 4.5% of the index.2 In contrast to the previous quarter, Brazil and Singapore no longer represent even 2.5% of the index’s value.
  • China-based companies continued to receive more capital than any other country, almost 40% of the total for the quarter. Combined, companies in China, South Korea, and, surprisingly, the United Kingdom garnered the most interest, slightly more than 60% of dollars invested during the quarter. Cash flows into South Korean and UK companies increased by 7% in each country this quarter over their long-term trend. In contrast, companies in Singapore, Japan, and Brazil saw less interest this quarter, as compared to their long-term average.

2 Funds in the global ex US emerging markets PE/VC index may occasionally invest in companies in developed markets regions as well as the emerging markets regions.

 

FIGURE 9 EMERGING MARKETS PE/VC INDEX REGIONAL RETURNS: GROSS COMPANY-LEVEL PERFORMANCE<br />Percent (%)
FIGURE 9 EMERGING MARKETS PE/VC INDEX REGIONAL RETURNS: GROSS COMPANY-LEVEL PERFORMANCE
Percent (%)

Notes: Returns in USD terms. Geographic region–specific gross company-level returns are before fees, expenses, and carried interest.

  • On a gross dollar-weighted basis, when combined, China, India, and South Korea returned nearly 7.6%. Among countries representing at least 2.5% of the index, Hong Kong earned the best return, 13.3%.

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 September 30, 2017, the database comprised 890 global ex US developed markets private equity and venture capital funds formed from 1986 to 2017 with a value of about $275 billion. Ten years ago, as of September 30, 2007, the benchmark index included 525 global ex US developed markets funds, whose value was roughly $169 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 September 30, 2017, the database comprised 652 emerging markets funds formed from 1986 to 2016 with a value of about $199 billion. Ten years ago, as of September 30, 2007, the benchmark index included 326 emerging markets funds, whose value was $43 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 September 2017, the MSCI ACWI consists of 46 country indexes comprising 23 developed and 24 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: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland, Qatar, Russia, 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 September 2017, 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 September 2017, the MSCI Emerging Markets Index included 24 emerging markets country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland, Qatar, Russia, 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 2017, 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.

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