Returns for U.S.-based private equity and venture capital funds
were essentially flat for the quarter ending June 30, 2012; the
performance of both alternative asset classes was down sharply from
the prior quarter. However, private equity and venture capital
funds outperformed U.S. public equity markets during the second
quarter. Venture capital fund returns slightly bested those for
private equity for the period, according to a new commentary from
Cambridge Associates LLC.
The Cambridge Associates LLC U.S. Private
Equity Index® returned negative 0.1% for
the second quarter, a 5.5% drop from the prior quarter. For
comparison, the S&P 500 returned negative 2.8% for the period,
a fall of 15.4% from the first quarter. The Cambridge Associates LLC U.S. Venture Capital
Index® was off 4.1% from its first
quarter performance, returning just 0.6% for the second period. The
Russell 2000, the small company index, returned negative 3.5%,
putting it 15.9% below its performance in the first quarter.
U.S. Private Equity and Venture Capital Index Returns (%) for Periods Ending
June 30, 2012
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Year
For the periods ending to 1 3 5 10 15 20 25
June 30, 2012 Qtr. Date Year Years Years Years Years Years Years
----------------------------------------------------------------------------
USPE -0.1 5.5 6.2 16.6 6.0 12.8 11.9 13.6 13.1
----------------------------------------------------------------------------
USVC 0.6 5.4 6.0 12.7 4.9 5.3 27.5 27.9 18.7
----------------------------------------------------------------------------
Other Indices
----------------------------------------------------------------------------
NASDAQ Composite* -5.1 12.7 5.8 16.9 0.6 7.2 4.9 8.6 8.0
----------------------------------------------------------------------------
Russell 2000 Composite -3.5 8.5 -2.1 17.8 0.1 7.0 6.1 9.0 8.1
----------------------------------------------------------------------------
S&P 500 -2.8 9.5 5.4 16.4 0.1 5.3 4.8 8.3 8.6
----------------------------------------------------------------------------
Sources: Cambridge Associates LLC, Dow Jones & Company,
Inc., Frank Russell Company, Standard and Poor's, and Thomson
Reuters Datastream.
* Capital Changes Only
As the table above indicates, for the first six months of 2012
the private equity and venture capital benchmarks performed almost
identically, earning 5.5% and 5.4%, respectively. Both trailed
public equities for the period. Over the three longest time
horizons in the table -- the 15-, 20-, and 25-year marks -- the
reverse was true, with both benchmarks significantly outperforming
comparable public market indices.
Funds Raised in 2008 had the Highest Return among the PE Index's
Largest Vintage Years. Among the VC Index's Largest Vintages, the
2000 Funds Led the Way
Three of the five largest vintage years by weight in the private
equity index generated positive returns for the second quarter,
including the two largest, 2007 and 2006. Together, these two
vintages represented 47% of the index's value; they earned 0.6% and
0.9%, respectively. The best performing vintage year of the top
five, 2008, earned 1.6%, while the worst, the 2004 funds, lost 3.4%
for the period.
The 2004 funds' relatively poor performance was driven primarily
by decreased valuations in information technology (IT) companies.
IT losses also impacted the 2008 funds, but these were offset by
valuation gains in hardware, healthcare, and manufacturing
companies.
In the VC index, four of the six largest vintages had negative
returns for the quarter. The slightly positive return for the index
as a whole, however, was helped by the 3.8% return generated by the
2000 vintage, a group of funds which represented 12.5% of the
index's value at the end of the period.
The relatively strong performance of the 2000 vintage funds was
driven primarily by software investments, which had the largest
gains in value, although value increases in IT investments also
helped the group's quarterly return. The 2006 vintage year funds,
the largest in the VC index, had solid gains in healthcare
investments, but these were more than offset by lost value in IT
and several other small sectors, resulting in a 0.8% loss for the
quarter.
In the PE Index, Capital Calls were Down while Distributions
were Up; in the VC Index, Calls and Distributions were both Up
Sharply
During the second quarter fund managers in the private equity
index asked for the lowest level of contributions from their
limited partners in the past three years: $11.3 billion, an almost
17% decrease from the prior period. At the same time, capital
distributions jumped almost 73% from the first quarter, to $28.7
billion, the second largest quarterly distribution in the last five
years.
"This was the fifth time in the last seven quarters that fund
managers in the PE index returned more capital to their limited
partners than they collected through contributions. And the scale
of the difference was, historically, striking, in that it was the
first quarter in the past 20 years that fund managers in the index
distributed more than 2.5 times the amount that they called," said
Keirsten Lawton, Senior Consultant, Private Equity Research at
Cambridge Associates. "The second quarter also marked the sixth
quarter in a row in which the 2007 funds, the largest vintage in
the index, called the most capital -- they are now about 70% drawn.
The largest distribution came from the 2006 funds, whose managers
returned 5% of contributed capital to their investors."
In the VC index, capital calls and distributions were both up
over the prior quarter. Fund managers called $3.8 billion and
distributed $5.6 billion to their limited partners, representing
increases of 24.3% and 21.1%, respectively, over the first quarter.
Investors in the 2008 vintage funds contributed more than a quarter
of all of the capital called during the period, while the 2004
funds distributed the most capital of any vintage, about 23.3% of
the total. However, funds raised in 2000 and 2007 also each
distributed more than $750 million to their investors.
Software was the Best Performing Sector in both Indices, IT was
the Worst
Three of the eight sectors representing at least 5% of the PE
index's value earned positive returns for the quarter. Software led
the way, earning 7.4%, followed by healthcare's 2.6% and consumer's
1.5%. IT was the worst performer, returning negative 4.1%. The
three largest sectors in the index -- consumer, energy, and
healthcare -- represented more than 50% of the index's value and
returned 0.2% on a dollar-weighted basis for the quarter.
Software was also the best performing of the four largest
sectors in the VC index, where it generated a second-quarter return
of 6.9%. Because software represented a larger percentage weight in
the VC index than the PE index (17.5% vs. 7.4%), its strong
performance had a bigger impact in helping to keep the VC index's
return in positive territory.
"The only significantly-sized sector that had a loss for the
quarter in the VC index was IT, which dropped almost two percent.
Since IT was also the largest sector in the index, representing
just over one-third of its value, it was the largest drag on the
index's performance during the period, and offset positive returns
in the software, healthcare and media sectors," said Peter
Mooradian, Managing Director and Venture Capital Research
Consultant at Cambridge Associates.
A copy of Cambridge Associates' commentary on the second-quarter
performance of its U.S. private equity and venture capital
benchmarks is available at
www.cambridgeassociates.com/about_us/news/press_releases/index.html.
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 Navigatorsm and Benchmark Calculator),
and performance monitoring, across all asset classes. The firm
compiles the performance results for over 5,000 private
partnerships and their more than 65,000 portfolio company
investments to publish its proprietary private investments
benchmarks, of which the Cambridge Associates LLC U.S. Venture
Capital Index® and Cambridge Associates LLC U.S. Private Equity
Index® are widely considered to be among the standard benchmark
statistics for these asset classes. 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); 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.
Both the Cambridge Associates LLC U.S. Venture Capital Index®
and the Cambridge Associates LLC U.S. Private Equity Index® are
reported each week in Barron's Market Laboratory section. In
addition, complete historical data can be found on Standard &
Poor's Micropal products and on our website,
www.cambridgeassociates.com.
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) 212.255.8459; email
lentini@sommerfield.com.
Media Contact: Frank Lentini Sommerfield Communications, Inc.
617-939-9094 lentini@sommerfield.com