SOURCE: Cambridge Associates

Cambridge Associates

November 13, 2012 08:45 ET

The Performance of U.S. Private Equity and Venture Capital Funds Was Flat in the Second Quarter, Though Better Than Public Equities for the Period, According to Cambridge Associates

Returns at the Half-Year Mark for the Alternative Asset Classes Were Almost Identical; Both Lagged the Public Markets

BOSTON, MA--(Marketwire - Nov 13, 2012) - 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
For the periods ending
June 30, 2012
  Qtr.   Year to Date   1
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

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

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,

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

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