Welcome!

SYS-CON UK Authors: Salvatore Genovese, Jamie Matusow

News Feed Item

Private Equity and Venture Capital Investments in Both Developed and Emerging Markets Outside the U.S. Produced Negative Returns in the Second Quarter, According to Cambridge Associates Indices

Both Alternative Asset Groups Bested Their Public Market Counterparts for the Period

BOSTON, MA -- (Marketwire) -- 12/10/12 -- Following solid gains in the first quarter, returns on private equity and venture capital funds that primarily invest in companies located in markets outside the U.S. slid into negative territory during the quarter ending June 30, 2012, according Cambridge Associates LLC (C|A). A relatively weaker Euro, as compared to the first quarter, contributed to the results, which were measured in U.S. dollar terms.

The Cambridge Associates LLC Global ex U.S. Developed Markets Private Equity and Venture Capital Index fell 1.5% during the period, which was the third time in the last four quarters that the index produced a negative return. The Cambridge Associates LLC Emerging Markets Private Equity and Venture Capital Index dropped 2.7% in the same period. The performance of the indices is derived from data compiled from more than 1,000 institutional quality funds raised between 1986 and 2012.

The table below provides performance data of the two C|A benchmarks versus comparable public market indices over a variety of time horizons ending on June 30, 2012.


  Global ex U.S. Developed and Emerging Markets Private Equity and Venture
                               Capital Indices
                         Returns (%) in U.S. Dollars
                        Periods ending June 30, 2012

----------------------------------------------------------------------------
  For the periods ending         Year to   1     3     5     10    15    20
       June 30, 2012        Qtr.   Date   Year Years Years Years Years Years
----------------------------------------------------------------------------
 ex U.S. Developed Markets
         PE and VC          -1.5     5.9  -3.4  13.7   1.8  13.7  13.4  13.2
----------------------------------------------------------------------------
Emerging Markets PE and VC  -2.7     3.4  -4.0  15.5   7.8  11.4   7.9   7.8
----------------------------------------------------------------------------
                                Other Indices
----------------------------------------------------------------------------
         MSCI EAFE          -7.1     3.0 -13.8   6.0  -1.6   5.1   2.9   5.3
----------------------------------------------------------------------------
   MSCI Emerging Markets    -8.8     4.1 -15.7  10.1   0.2  14.4   6.3   8.3
----------------------------------------------------------------------------

Sources: Cambridge Associates LLC, MSCI Inc., Standard & Poor's, and Thomson Reuters Datastream. MSCI data provided "as is" without any express or implied warranties.

The developed markets index outperformed its respective public market counterpart, the MSCI EAFE index, in every period shown in the above table. The emerging markets index bested its counterpart, the MSCI Emerging Markets index, in five of the eight periods shown, including the second quarter and the year-to-date mark.

Three of the Five Largest Vintage Years in the Developed Markets Index had Positive Returns for the Quarter, but the Index Was Dragged Down by the Poor Performance of the 2006 Vintage

Although the developed markets index was down for the quarter, the majority of its largest vintage years generated slightly positive earnings in the second quarter. The 2005, 2007, and 2008 vintages' returns ranged from 0.4% to 0.7%; collectively, these three vintages comprised 48.1% of the index's value by weight. However, the largest vintage, the group of funds launched in 2006, accounted for 31.3% of the index's value and had the second largest loss of the top five vintages for the quarter, -3.1%. This fact played a key role in the index's overall quarterly performance. Losses in investments in the retail sector helped drive down results for the 2006 vintage funds.

In the C|A Emerging Markets Index, all four of the meaningfully sized vintages were negative. The largest vintage, 2007, comprised almost 38% of the index's value and fell 2.6% for the quarter, due to widespread write-downs. The best performing of the top four was the 2006 vintage, which almost broke even, dropping just 0.1% for the period. The worst performing of the group was the 2005 vintage, which fell 4.0%, primarily due to write-downs in financial services and manufacturing companies.

Capital Calls were Down and Distributions were Up for the Quarter in the Developed Markets Index; the Opposite was True in the Emerging Markets Index

Fund managers in the developed markets index called $6.1 billion from their investors in the second quarter, nearly one-third less than the prior quarter. Almost three-fourths of the total, $4.5 billion, came from funds raised from 2006 to 2008. The managers distributed $8.9 billion for the quarter, a 32.6% increase from the first quarter. About two-thirds of the distributions came from funds raised from 2005 to 2007.

In the emerging markets index the situation was reversed, with contributions increasing over the prior quarter and distributions falling. Private equity and venture capital fund managers in the index called $3.7 billion for the quarter, up 21% over the first quarter. They distributed just $1.1 billion, an almost 40% drop from the prior quarter.

"While developed markets capital distributions have maintained their recent trend of outpacing capital calls in now five of the last six quarters, a fact limited partners surely appreciate," said Andrea Auerbach, managing director and head of private investment research at Cambridge Associates. "Capital calls have lagged, likely impacted by broader macroeconomic factors, particularly in Europe. Conversely, distributions in the emerging markets index fell sharply, with the index's limited partners receiving the smallest distribution in three years."

Healthcare was the Best Performing Sector in the Developed Markets Index

Of the six significantly sized sectors in the developed markets index, half earned positive returns and half were negative. The sector turning in the best performance was healthcare, which earned 3.6%. Financial services and media also generated positive returns for the quarter. The worst performing sector was manufacturing, which dropped 3.7%. Consumer and IT also had losses for the quarter.

All Major Sectors in the Emerging Markets Index Posted Losses for the Second Quarter

The emerging markets index also had only six meaningfully sized sectors for the quarter, and all of them generated negative earnings for the period. The biggest loser was information technology, which dropped 8.4%. Consumer, the largest sector, was the best performer, dropping just 0.6%.

Companies in Europe Remain the Key Focus of Managers' Investments in the Developed Markets Index, while Asia Remains the Center of Focus in the Emerging Markets Index

About 70% of the capital invested in the developed markets private equity and venture capital index went to companies headquartered in Western Europe, which was about 8% less than the historical average. In the emerging markets index, 69% of all capital invested went to companies in Asia, with companies in Mainland China being by far the primary recipients.

About Cambridge Associates and the Indices

Founded in 1973, Cambridge Associates is a provider of independent investment advice and research to institutional investors and private clients worldwide. Today the firm serves over 900 global investors and delivers a range of services, including investment consulting, outsourced portfolio solutions, research services and tools (Research Navigator(sm) and Benchmark Calculator), and performance monitoring, across all asset classes. The firm compiles the performance results for more than 5,000 private partnerships and their more than 65,000 portfolio company investments to publish proprietary private investments. Cambridge Associates has more than 1,000 employees serving its client base globally and maintains offices in Arlington, VA; Boston; Dallas; Menlo Park, CA; London; Singapore; Sydney; and Beijing. Cambridge Associates consists of five global investment consulting affiliates that are all under common ownership and control. For more information about Cambridge Associates, please visit www.cambridgeassociates.com.

Cambridge Associates has been selected to provide data and to develop and maintain customized industry benchmarks for a number of prominent industry associations, including the Institutional Limited Partners Association (ILPA), Australian Private Equity & Venture Capital Association Limited (AVCAL); the African Venture Capital Association (AVCA); the Hong Kong Venture Capital and Private Equity Association (HKVCA); the Indian Private Equity and Venture Capital Association (IVCA); the New Zealand Private Equity & Venture Capital Association Inc. (NZVCA); the Asia Pacific Real Estate Association (APREA); and the National Venture Capital Association (NVCA). Cambridge also provides data and analysis to the Emerging Markets Private Equity Association (EMPEA). 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.

Inquiries about these indices should be addressed to: Frank Lentini at Sommerfield Communications, 156 Fifth Avenue Suite 1219, New York, NY 10010; (617) 939-9094; fax: (917) 591-4357; email: lentini@sommerfield.com.

Media Contact:
Frank Lentini
Sommerfield Communications, Inc.
(617) 939-9094
lentini@sommerfield.com

More Stories By Marketwired .

Copyright © 2009 Marketwired. All rights reserved. All the news releases provided by Marketwired are copyrighted. Any forms of copying other than an individual user's personal reference without express written permission is prohibited. Further distribution of these materials is strictly forbidden, including but not limited to, posting, emailing, faxing, archiving in a public database, redistributing via a computer network or in a printed form.