SOURCE: Cambridge Associates

Cambridge Associates

August 28, 2012 09:00 ET

U.S. Private Equity and Venture Capital Funds Joined Public Equities in Delivering a Strong First Quarter for 2012, According to Cambridge Associates

All of the Major Sectors in CA's Benchmarks for PE and VC Performance Had Positive Returns for the Quarter, With Manufacturing Leading the Way for Private Equity and Media the Top Performer for Venture Capital

BOSTON, MA--(Marketwire - Aug 28, 2012) - In concert with a strong performance by public equities and a healthy market for initial public offerings (IPOs), U.S.-based private equity and venture capital funds locked in solid positive returns for the first three months of 2012. Private equity funds essentially mirrored their performance for the final quarter of 2011, while venture capital funds sharply improved their quarter-over-quarter earnings, according to a commentary published today by Cambridge Associates LLC. The public markets outperformed both private asset classes during the period, though the reverse was true over long time horizons.

The Cambridge Associates LLC U.S. Private Equity Index® returned 5.4% in the quarter ending March 31, 2012, a tenth of a point higher than in the prior quarter. For comparison, the S&P 500 rose 12.6% in the first quarter. The Cambridge Associates LLC U.S. Venture Capital Index® earned 4.7%, a more than three percentage point improvement over the fourth quarter but lagging far behind the NASDAQ Composite's 18.7% return. 

U.S. Private Equity and Venture Capital Index Returns (%) for Periods ending March 31, 2012

For the periods ending March 31, 2012   Qtr.   1
USPE   5.4   10.9   18.3   7.3   12.7   12.5   13.8   13.3
USVC   4.7   12.8   12.6   5.9   4.4   31.0   26.3   18.6
Other Indices
DJIA   8.8   10.2   23.6   4.2   5.0   7.1   9.8   10.0
NASDAQ Composite*   18.7   11.2   26.5   5.0   5.3   6.4   8.5   8.2
Russell 2000 Composite   12.4   -0.2   26.9   2.1   6.4   7.5   8.8   8.2
S&P 500   12.6   8.5   23.4   2.0   4.1   6.1   8.6   8.9

Sources: Cambridge Associates LLC, Dow Jones & Company, Inc., Frank Russell Company, Standard and Poor's, and Thomson Reuters Datastream.

* Capital Changes Only

As shown in the table above, both Cambridge Associates indices significantly outperformed public equities over the 15-, 20-, and 25-year marks, with the venture capital index taking the lead in each time period. For the ten-year period ending March 31, the results were mixed: the private equity index beat out the public markets while the venture capital index, though outstripping the S&P 500, trailed the Russell 2000 and the technology-heavy NASDAQ Composite. 

At the end of the first quarter, public companies accounted for about 20.8% of the value of the private equity index and almost 16% in the venture capital index, both numbers up slightly over the prior quarter.

Limited Partner Contributions to PE Funds Fell by more than half -- the Largest Quarterly Percentage Decrease in more than 20 Years

Capital calls and distributions in the private equity index were both down significantly in the first quarter, as compared to the fourth. Fund managers called $13.4 billion in the first quarter and distributed $16.4 billion, representing quarterly decreases of 51.4% and 38.4%, respectively. The drop in contributions was the largest quarterly percentage decrease since the fourth quarter of 1990.

"We typically see a drop in 1st quarter investment activity as 4th quarter volume is motivated by sellers seeking to get something done by year end. However the decline in volume was larger this year and was partly driven by the macroeconomic environment," said Keirsten Lawton, Senior Consultant, Private Equity Research at Cambridge Associates. "The uncertainty around Europe's resolution has caused buyers to question companies' more rosy projections while a rebound in public markets led owners to demand higher prices. This resulted in fewer transactions which have flowed through to our benchmarks and the decline in capital calls."

All Five of the Largest Vintage Years in the PE Index had Positive Quarterly Returns

Of the more than 25 vintages of funds in the private equity index, only five represented 5% or more of the index's value, and all five had positive returns in the first quarter. The 2005 vintage saw the largest gains, rising 7.4%, while the 2008 vintage funds -- also the smallest of the top five vintages -- had the lowest return of the group, rising 4.0%. 

The largest vintage year in the private equity index was the 2007 vintage, which comprised almost a quarter (24.9%) of the index's value at the end of the quarter. The 2007 vintage year funds returned 4.2% for the quarter. Their performance was driven by write-ups in energy, information technology, and manufacturing. The second largest vintage in the index, the 2006 funds, accounted for just over 23% of the index's value and returned 5.3% for the period; gains were largely driven by improved valuations in consumer, energy, and healthcare companies.

Manufacturing led the Way among the Largest Sectors in the PE Index

As with the largest vintage years, all eight of the largest sectors in the private equity index had positive returns in the first quarter. Manufacturing, which represented 8.3% of the index's value, was at the top of the earnings list, rising 8.7%, while media was the laggard of the group, earning just 2.3% for the period. The two largest sectors by weight in the index -- consumer and energy -- earned 4.8% and 5.8% respectively for the quarter; together, they represented almost 38% of the value of the index.

Like the PE Index, All of the Top Vintage Years in the VC Index had Positive Results for the First Quarter

The spread between the best and worst returns of the seven top-sized vintage years in the venture capital index in the first quarter was small: only 2.9%. All seven vintage years turned in positive performances, with the 2007 vintage topping out the group with a 6.6% return. The 2005 funds brought up the rear of the group, earning 3.7%. Funds launched in 2006, the largest vintage year by weight in the index and representing 15% of its value, returned 3.5% for the quarter.

Gains in the 2007 vintage were driven by improved valuations in IT, media, software, and healthcare. Improved valuations for healthcare and IT companies, as well as a drop in valuations for hardware businesses, were the primary factors impacting the return of the vintage year 2006 funds.

Media was the Best Performing Large Sector in the VC Index

Of the four sectors representing at least 5% of the venture capital index's value -- healthcare, IT, media, and software -- media was the leader, earning a 10.3% return for the quarter. Software posted the lowest return of the group, earning 5.1%. IT, the largest sector by weight and representing 36.5% of the index's value, rose 7.2% for the period. Together, IT, healthcare, and software -- the three largest sectors -- comprised more than 76% of the index's value and, on a dollar-weighted basis, earned 6.3%.

Capital Calls in the VC Index Fell for the Quarter while Distributions were up

"Quarterly fund distributions rose 31.1%, marking another quarter in which distributions outstripped contributions in the venture capital index," said Theresa Sorrentino Hajer, Managing Director and Venture Capital Research Consultant at Cambridge Associates. "IPO activity also had a strong showing, in terms of number of issues and dollars raised, helped in large part by an outperformance of the broader US stock market. This environment should help buoy M&A activity, which declined in the first quarter following a solid 2011 performance."

A copy of Cambridge Associates' commentary on the first-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 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 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. 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), the African Venture Capital Association (AVCA), and the Hong Kong Venture Capital and Private Equity Association (HKVCA). 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; 212.255.8386; (fax) 212.255.8459; email

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