SOURCE: Cambridge Associates

Cambridge Associates

September 03, 2013 09:28 ET

U.S. Private Equity and Venture Capital Funds Earned Positive Returns in the First Quarter, Though Both Lagged the Public Markets, According to Cambridge Associates

Private Equity Outperformed Venture Capital for the Period

BOSTON, MA--(Marketwired - Sep 3, 2013) - Private equity and venture capital funds based in the U.S. kicked off the first quarter of 2013 with positive, single-digit returns that were higher than the previous period. In the midst of a strong first quarter for public equities, however, both alternative asset classes underperformed the public markets, according to benchmark indices published by Cambridge Associates.

The Cambridge Associates LLC U.S. Private Equity Index® rose 4.5% for the period ending March 31, 2013, which was a 1.0% improvement over its performance the prior quarter. For comparison, the S&P 500 index rose 10.6% in the first quarter. The Cambridge Associates LLC U.S. Venture Capital Index® more than doubled its prior period results by earning 2.5% in the first quarter. For comparison, the Russell 2000 Composite, the small company index, rose 12.4% in the same period. The following table details the performance of the Cambridge Associates benchmarks against several key public market indices. Returns for periods of one year and longer are annualized.

U.S. Private Equity and Venture Capital Index Returns (%)
Periods ending March 31, 2013
For the periods ending March 31, 2013   Qtr.   1
USPE   4.5   12.6   15.1   8.0   14.6   11.5   13.5   13.3
USVC   2.5   4.9   12.0   4.8   7.4   22.8   29.6   19.6
Other Indices
DJIA   11.9   13.4   13.3   6.5   8.9   5.8   10.0   11.1
NASDAQ Composite*   8.2   5.7   10.9   7.5   9.3   3.9   8.1   9.0
Russell 2000 Composite   12.4   16.3   13.5   8.2   11.5   6.0   8.8   9.5
S&P 500   10.6   14.0   12.7   5.8   8.5   4.3   8.5   9.9
Sources: Cambridge Associates LLC, Dow Jones & Company, Inc., Frank Russell Company, Standard and Poor's, and Thomson Datastream.
* Capital Changes Only

The private equity benchmark earned positive returns in three of the four quarters comprising the 12-month period that ended on March 31; the venture capital benchmark was positive in all four quarters. By way of comparison, public market returns were negative in two of the four quarters covering the same period.

At the end of the first quarter, public companies accounted for nearly 18% of the private index's value and about 12.5% of the venture capital index's value.

The Five Largest Vintage Years in the PE Index All Had Positive First-Quarter Returns

In the first quarter, every vintage year from 1992 through 2012 was positive. This included the five largest vintages (vintage years 2004 - 2008), each of which represented at least 5% of the benchmark's value.

Funds raised in 2005 were the top performers of the five largest vintages, earning 6.1% for the quarter. The 2008 funds brought up the rear, returning 3.4%. The largest vintage in the index, the 2007 funds, which accounted for 27.5% of the benchmark's value, rose 4.7%, as did the second largest vintage, the 2006 funds, which represented 22.1% of the index. Write-ups in energy and healthcare companies drove the 2007 vintage's performance.

Capital Distributions in the PE Index Outpaced Contributions for the Eighth Time in the Last Nine Quarters

"In the first quarter, fund managers in our private equity index called the lowest amount of capital from their LPs [limited partners] since the third quarter of 2009 -- contributions were about $12.6 billion, which was a 50.1% drop from the final quarter of 2012. Distributions to LPs were also down, dropping 39.3% from Q4 to $29.6 billion in the first quarter. However, Q1 was the eighth out of the last nine quarters in which distributions outpaced contributions," said Keirsten Lawton, Senior Consultant, Private Equity Research at Cambridge Associates.

Funds raised in 2007 called the most capital of any vintage in the index, a total of $5.0 billion, while funds in the 2006 vintage led the way in capital returns, distributing $6.5 billion to their LPs during the quarter.

Financial Services Was the Quarter's Top Performing Large Sector in the PE Index

There were eight sectors in the PE index that represented at least 5% of the benchmark's value ("significantly sized sectors"). All eight had positive returns in the first quarter. Financial services led the way, rising 6.6%. Manufacturing, which had the second best performance of the significantly sized sectors, rose 5.4%. The largest sector, consumer, rose 3.9%; the second largest, energy, gained 4.5%. Software, which turned in the lowest quarterly performance of the eight largest sectors, gained 2.9%.

Fund managers in the PE index poured 39% of all the capital that they invested during the quarter into energy companies.

All Seven of the Largest Vintages in the Venture Capital Index Were Positive for the Quarter

Similar to the PE index, all seven of the largest vintage years in the venture capital index had positive returns in the first quarter. The spread between the best performing funds, those raised in 2008, and the poorest performing group, the 2004 vintage, was just 2.6%. The 2008 vintage year funds, the third largest in the index by weight, rose 4.2%. Funds raised in 2006, the largest vintage in the index, earned 2.8%. Higher valuations for healthcare and IT companies were the primary drivers of the 2006 vintage's performance.

Distributions in the VC Index Outstripped Contributions for the Fifth Consecutive Quarter

Also as in the PE index, capital distributions in the VC benchmark once again surpassed contributions. Both contributions and distributions declined from the previous quarter.

Fund managers in the VC index called just under $2.9 billion from their limited partners, a 16.9% decrease from last year's fourth quarter, and they returned $3.4 billion, a drop of 45.1%. The first quarter was the fifth quarter in a row in which capital distributions surpassed contributions. Funds formed in 2007, 2008, 2010, and 2012 were responsible for 68.4% of the total capital called during the quarter. Vintage years 2000, 2006, and 2007 accounted for 58.6% of the quarter's total capital distributions.

Only Three Sectors in the VC Index Represented 5% or More of the Index; All Three Had Positive First Quarters

"Value in the venture capital index remained tightly concentrated by sector, with just three sectors -- IT, healthcare, and software -- comprising more than three-quarter's [75.9%] of the index. Of these, the largest, IT, which accounted for 32.0% of the benchmark, gained 3.9% for the quarter. The next two, healthcare and software, returned 4.5% and 4.9%, respectively; two-thirds of the realizations for the quarter came from these two sectors. Write-ups in the software sector, which were fairly widespread across the index, also helped to boost performance," said Theresa Sorrentino Hajer, Managing Director, Venture Capital Research at Cambridge Associates.

IT and software companies together attracted 63.0% of the total capital that venture capital fund managers in the index invested during the first quarter, a slight drop from the long-term average for the two sectors. Two-thirds of the VC benchmark's realizations during the first quarter came from software and healthcare companies.

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 950 global investors and delivers a range of services, including investment consulting, outsourced investment solutions, research and tools (Research Navigatorsm and Benchmark Calculator), and performance monitoring, across asset classes. The firm compiles the performance results for over 5,300 private partnerships and their more than 67,000 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 1,100 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.

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).

Both the Cambridge Associates LLC U.S. Private Equity Index® and the Cambridge Associates LLC U.S. Venture Capital 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, 55 Broad Street, 20th Floor, New York, NY 10004; 212.255.8386; (fax) 212.255.8459; email

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