BOSTON, MA--(Marketwire - Jul 18, 2012) - Fallout from the European economic crisis impacted the fourth quarter 2011 performance of private equity and venture capital investments in both developed and emerging markets around the globe, according to new commentary from Cambridge Associates. Returns on both types of investments, as measured in U.S. dollars, underperformed those of their respective public market counterparts for the quarter. For the year, however, the situation was reversed, with returns on private equity and venture capital funds in ex U.S. developed and emerging markets far outstripping the same public market indices.
The Cambridge Associates LLC Global ex U.S. Developed Markets Private Equity and Venture Capital Index dropped 0.5% in the fourth quarter, its second consecutive quarterly decline. Since returns are calculated in U.S. dollars, the index's performance was strongly influenced by the weakened Euro. Because of relatively strong performance in the first half of the year, however, the 12-month return for the index was 2.7%, beating out the MSCI EAFE's annual return by almost 15%.
Despite the challenging economic conditions, the Cambridge Associates LLC Emerging Markets Private Equity and Venture Capital Index rebounded from a sharply negative third quarter to finish the year on a positive note, returning 1.0% for the final quarter. The index's overall return for 2012 was down 1.5%; nevertheless, it bested its public market counterpart, the MSCI Emerging Markets index, by 13.6% for the same period.
Cambridge Associates' developed markets index tracks over 600 private equity and venture capital funds that invest primarily in Australia, Canada, Israel, Japan, New Zealand, and Western Europe. Cambridge Associates' emerging markets index includes more than 350 private equity and venture capital funds investing mostly in companies in Africa, emerging Asia, emerging Europe, Latin America, and the Middle East ex Israel.
Returns in the table below are annualized for periods of one year and longer. Returns are based on limited partners' fund-level performance and are net of fees, expenses, and carried interest.
|Global ex U.S. Developed and Emerging Markets Private Equity and Venture Capital Indices|
|Returns (%) in U.S. Dollars|
|Periods ending December 31, 2011|
|For the periods ending December 31, 2011||Qtr.||1
|Ex-U.S. Developed Markets PE and VC||-0.5||2.7||11.5||3.1||13.7||13.2||13.3|
|Emerging Markets PE and VC||1.0||-1.5||18.5||10.1||11.2||8.0||7.9|
|MSCI Emerging Markets||4.5||-18.2||20.4||2.7||14.2||7.1||8.5|
Sources: Cambridge Associates LLC and MSCI Inc. MSCI data provided "as is" without any express or implied warranties.
The developed markets index continued to be the more consistent performer vis-à-vis its public market counterpart, beating the latter in every period shown except the fourth quarter. Returns for the emerging markets index against its counterpart have been more mixed, and this trend continued in the period.
Distributions to Limited Partners from Funds in the Developed Markets Index during the Fourth Quarter were the Largest in more than Five Years
In the fourth quarter, managers of funds in the developed market index called the smallest amount of capital from their limited partners since the second quarter of 2010, but they distributed the most to their investors since the third quarter of 2007.
Limited partner (LP) contributions were down 16.2% from the third quarter, to $7.8 billion, while distributions were up 11.2%, to $13.5 billion. Investors in funds launched in 2006 through 2008 contributed more than three-fourths of the capital during the quarter -- almost $6 billion. Investors in funds launched in 2000, 2002, and 2005 through 2007 were the primary beneficiaries of the capital distributions, receiving roughly 81.5% of the total, or roughly $11.0 billion.
For the year, LP contributions to funds in the developed index were down 5.6% from 2010, while distributions were up 74.4%.
In the Emerging Markets Index, Capital Calls and Distributions both Increased in the Final Quarter and Year-over-Year; Annual Distributions were the Highest in the History of the Index
Managers in the emerging markets index called and distributed more capital in the fourth quarter than they did in the third. Calls were up 13.9%, to $3.5 billion, with LPs of funds raised in 2007 and 2008 contributing more than half (53%) of the total. Returns increased 10.3%, to $3.1 billion, with investors in funds launched in 2007 receiving 38% of the total.
For the year, fund managers called nearly $14.3 billion, the most in any year since 2008. And they distributed more capital in 2011 than in any other year since the inception of the emerging markets index: $12.0 billion.
Fourth Quarter Returns by Key Sectors in the Developed Index were Mixed, but for the Year, All but Manufacturing Had Positive Returns
Of the eight meaningfully-sized sectors in the developed index, five had positive returns in the fourth quarter, while three fell. Energy, the smallest of the eight, was the best performer, earning 6.7%, while manufacturing, the third largest sector, was the worst performer, dropping 5.7%. The largest sector was consumer, which represented 25.9% of the value of the index and lost 2.2%.
For the year, all but one of the meaningfully-sized sectors earned a positive return. Media topped the list, earning 10.3%, while manufacturing was the lone loser, dropping 4.9%. The three largest sectors -- consumer, healthcare, and manufacturing -- earned 4.0% on a dollar-weighted basis for the year.
Media was the Top Performer of the Key Sectors in the Emerging Markets Index for the Quarter, while IT Ran Away with Top Honors for the Year with a Return of almost 31%
In the emerging markets index, media led the way among the seven meaningfully-sized sectors with a 10.4% return for the fourth quarter, though it represented only 5.2% of the index, making it the smallest of the large sectors. As in the developed markets index, consumer was the largest sector by weight, representing 22.0% of the emerging index; it earned 4.3%. Financial services turned in the only negative result of the group for the quarter, falling 2.2%.
Financial services was also the worst-performing sector of the group for the year, losing 13.2%. Consumer earned 8.8%, while information technology (IT) represented almost 12% of the index and posted by far the best return of the top sectors, earning 30.9%.
Emerging Markets Index Still Dominated by Small Number of Vintages
"Three vintage years continued to be the primary drivers of the global emerging markets index's performance in the fourth quarter," said Miriam Schmitter, Managing Director and head of Cambridge Associates' international private equity and venture capital research. "The vintages -- 2005, 2006, and 2007 -- together represented three-fourths of the benchmark's value. The index's overall performance for the quarter was driven by consumer companies, where we saw improved valuations and strong realizations during the quarter."
About CA 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 4,700 private partnerships and their more than 64,000 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. For more information about Cambridge Associates, please visit www.cambridgeassociates.com.
Cambridge Associates LLC's proprietary databases provide independent statistics to the institutional investment industry, the National Venture Capital Association (NVCA), the Institutional Limited Partners Association (ILPA), the Indian Private Equity and Venture Capital Association (IVCA), the Australian Private Equity & Venture Capital Association, Limited (AVCAL), the New Zealand Venture Capital Association (NZVCA), the African Venture Capital Association (AVCA), and the Hong Kong Venture Capital and Private Equity Association (HKVCA). The pooled means 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.
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