SOURCE: Cambridge Associates

Cambridge Associates

March 07, 2012 07:00 ET

Returns on Private Equity and Venture Capital Investments Outside the U.S. Turned Negative in Q3 2011, but Still Handily Outperformed Comparable Public Equities for the Period

BOSTON, MA--(Marketwire - Mar 7, 2012) - The growing debt crisis in Europe and a strong U.S. dollar heavily impacted global returns on alternative investments during last year's third quarter. Private equity and venture capital funds that invest primarily in developed markets outside the U.S. as well as those that target emerging markets each posted a loss for the period. The last time funds of these asset classes in both developed and emerging markets recorded a negative quarter was for the three months ending June 30, 2010, according to Cambridge Associates LLC.

In U.S. dollar terms, the Cambridge Associates LLC Global ex U.S. Developed Markets Private Equity and Venture Capital Index dropped 8.4% for the quarter. The Cambridge Associates LLC Emerging Markets Private Equity and Venture Capital Index performed only marginally better, sliding 8.2%. Both, however, easily beat the returns of their comparable public market benchmarks, the MSCI EAFE and MSCI Emerging Markets, which fell 19.0% and 22.5%, respectively, for the period.

Both Cambridge Associates indices also performed well versus their public equity counterparts over other time horizons ending on September 30, 2011. The developed markets index outstripped the MSCI EAFE in every time period listed in the table below, and in all but one case (the three-year mark), by a margin of more than 10%. The emerging markets index was not quite as consistently dominant, but it still bested its public markets counterpart, the MSCI Emerging Markets, in all but two listed periods, the 10- and 20-year marks.

All returns in the following table are in U.S. dollars and are annualized for periods of one year and longer. 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 emerging Asia, emerging Europe, Latin America, and the Middle East ex Israel. Returns of both indices 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 September 30, 2011
For the periods ending September 30, 2011 Qtr. Year to Date 1
ex U.S. Developed Markets PE and VC -8.4 3.3 12.7 4.3 6.8 13.5 13.9 13.7
Emerging Markets PE and VC -8.2 -2.2 9.5 11.9 12.1 10.6 8.3 8.1
Other Indices
MSCI EAFE -19.0 -15.0 -9.4 -1.1 -3.5 5.0 3.3 4.5
MSCI Emerging Markets -22.5 -21.7 -15.9 6.6 5.2 16.4 6.8 9.0
S&P 500 -13.9 -8.7 1.1 1.2 -1.2 2.8 5.2 7.6

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

All of the Largest Vintage Years in Each Index Posted Negative Returns

Returns for each of the five vintages representing at least 5% of the value of the developed markets index fell by at least 5% in the third quarter, with the largest vintage, 2006, dropping the most: 9.5%. Because of its size (it represented 28.3% of the index), the 2006 vintage's loss had the single biggest impact on the index's quarterly return. Write downs in media and consumer businesses were the chief cause of the vintage's losses. The best performing of the five largest vintages was also the smallest: the 2008 vintage represented 5.2% of the index and posted a -5.2% loss for the period. Its performance was driven primarily by healthcare, financial services and energy companies.

In the emerging markets index, five vintage years accounted for nearly 92% of the index's value. All five earned negative returns for the quarter. While the 2004 vintage was the worst performer, losing 10.7%, it was the 2007 vintage, the largest in the index and representing 38% of its value, which had the greatest impact on the index's performance. The 2007 vintage lost 9.2% for the quarter, largely due to write downs by consumer companies. As in the developed markets index, the 2008 vintage was the emerging markets index's best performer and turned in an identical performance, dropping 5.2%.

Capital Calls Were Down in both Indices. In Emerging Markets, Distributions Were also Down, but they Were Up in Developed Markets

Fund managers in the developed markets index drew down less capital in the third quarter than they did in the second, but distributed more. Contributions from limited partners fell 10% to $8.7 billion while distributions rose nearly 9% to $12.3 billion.

In the emerging markets index, calls and distributions were almost equal; both were down from the prior quarter. Contributions dropped 36%, to a total of $2.7 billion, while distributions fell 9%, to $2.9 billion. This was only the second quarter since the end of 2005 that fund managers in the emerging markets index distributed more capital than they called.

Consumer and information technology (IT) companies attracted the most capital from fund managers in the developed markets index during the third quarter -- almost 45% of the total. In the emerging markets index, consumer, financial services and manufacturing companies were the principal recipients of investment capital, together collecting 51% of the total.

Every Sector in both Indices Posted a Negative Return for the Third Quarter

For the first time since the first quarter of 2009, all of the significantly sized sectors in the developed markets index produced a negative return. Consumer, the largest sector in the index and representing just over a quarter of its value, lost 8.9%. The energy sector dropped the most: 12.3%. IT did the best of the eight significantly sized sectors, sliding 5.6%.

The large sectors in the emerging markets index posted similar marks. For the first time since the fourth quarter of 2008, all of these sectors were negative. In sharp contrast to their performance in the developed markets index, IT companies in the emerging markets index went from two straight quarters earning the best return and four consecutive quarters of double digit returns to the index's worst performer, posting a 10.7% loss for the third quarter. Consumer companies were the best performers of the group, losing 6.2%.

Regional Returns in both Indices Were Negative across the Board. Capital continues to pour into Companies in Western Europe and Emerging Asia

"The breadth of the global economic malaise in the third quarter was evident by the uniformly negative performance of funds in virtually every major region in both indices. In the developed markets index, companies in the largest region by value in the index, the U.K., fared best, losing only 6.2%, which helped prevent an even sharper fall for the index as a whole. In the emerging markets index, mainland China played a parallel role in helping to buoy the index's performance. Mainland China was by far the largest region in the index, representing 38% of its value, and was also the best performer of the largest regions, posting a negative 6.2% return," said Miriam Schmitter, Managing Director and head of Cambridge Associates' international private equity and venture capital research.

During the third quarter, 70% of the investment capital in the developed index went to companies in Western Europe, while in the emerging markets index, companies in emerging Asia continued to be the major recipients, taking in 76% of the capital invested during the quarter.

A copy of Cambridge Associates' commentary on the third-quarter performance of its developed and emerging markets 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 representing more than $3 trillion in aggregate assets. Cambridge Associates 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 more than 4,500 private partnerships and their more than 62,000 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 the industry-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 is recognized as a thought leader, innovator and advocate for institutional investors. For more information about Cambridge Associates, please visit

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), and the African Venture Capital Association (AVCA). 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.

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; 212.255.8386; (fax) 212.255.8459; email

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