SOURCE: Cambridge Associates

Cambridge Associates

March 16, 2016 10:30 ET

U.S. Private Equity and Venture Capital Funds Posted Negative Returns in Q3 2015, but Bested Public Equities for the Quarter

Over the First 9 Months of 2015, PE and VC Funds Posted Positive Returns and Strongly Outperformed the Public Markets

BOSTON, MA--(Marketwired - Mar 16, 2016) - In a challenging third quarter for equity investors both public and private, U.S. private equity and venture capital funds each lost ground for the first time in several years, though the latter only fractionally. Both bested public market equity returns, according to benchmarks published by Cambridge Associates LLC.

For the quarter ending September 30, 2015, the Cambridge Associates LLC U.S. Private Equity Index® returned -1.4%. The Cambridge Associates LLC U.S. Venture Capital Index® posted a return of -0.4%. Over the first three quarters of the year, the same indexes respectively gained 5.3% and 11.3%. For comparison, the technology-heavy Nasdaq Composite lost 7.4% in Q3 and 2.4% during the first three quarters. The table below provides additional comparisons with several key public equity indexes over a number of time periods. The CA PE index outperformed the Russell 2000® and the S&P 500 over all nine time horizons shown; the CA VC index beat out these same indexes in every period except the 15-year mark.

Table 1: U.S. Private Equity and Venture Capital Index Returns
Periods Ended September 30, 2015 • U.S.$ Terms • Percent (%)
  Qtr YTD 1 Yr 3 Yr 5 Yr 10 Yr 15 Yr 20 Yr 25 Yr
CA U.S. Private Equity -1.4 5.3 6.2 14.3 14.7 11.8 10.5 13.2 13.4
CA U.S. Venture Capital -0.4 11.3 22.8 20.8 17.7 11.0 2.9 33.7 24.4
Nasdaq Composite* -7.4 -2.4 2.8 14.0 14.3 7.9 1.5 7.7 10.9
Russell 2000® -11.9 -7.7 1.2 11.0 11.7 6.5 6.5 8.0 10.6
S&P 500 -6.4 -5.3 -0.6 12.4 13.3 6.8 4.0 8.1 9.9
Sources: Cambridge Associates LLC, Frank Russell Company, Standard & Poor's, and Thomson Reuters Datastream.
Note: Because the U.S. Private Equity and Venture Capital indexes are capital weighted, the largest vintage years mainly drive the indexes' performance.
* Capital change only.

Private Equity (PE) Performance Insights

New investments and sales activity declined in Q3

In Q3 2015, fund managers called and returned less capital than in the previous quarter. Calls dropped 6.1% to $17.8 billion, while distributions fell 9.8% to $35.7 billion. Over the last four quarters, contributions and distributions dropped 23% and 9% respectively compared with the same period in 2014.

"In distribution activity, 2006 and 2007 continue to represent the proverbial pig working its way through the python. Almost half of the third quarter's $16.7 billion in private equity distributions went to LPs of these two (largest) vintages in the index. On the contributions side, nearly two-thirds came from the 2011, 2012, and 2014 vintages -- a total of about $11.9 billion. In Q3, distributions surpassed contributions by 1.4 times, marking the 15th consecutive quarter in which this held," said Keirsten Lawton, co-head of U.S. Private Equity Research.

Negative returns are broadly distributed by vintage

Third quarter returns for the six meaningfully sized vintages in the private equity index ranged from -0.3% for funds raised in 2012 to -3.2% for funds raised in 2008. (A vintage is "meaningfully sized" if it contributes at least 5.0% to the index's value by weight.) Nearly equal write-ups in health care and write-downs in energy were the primary contributors to the 2012 vintage's relatively flat performance. The main driver for the 2008 vintage's poor performance was write-downs on investments in energy companies.

The largest vintage in the index, 2007, returned -2.4%. Write-downs in energy and construction-related businesses were the principal factors behind the loss.

Energy write-downs drove the losses and overwhelmed positive returns from other large sectors

By the end of the third quarter, seven sectors in the PE index were significantly sized and six had positive returns for the quarter. The lone exception was energy, which suffered a double-digit decline of 11.9%. Software companies fared best, returning 5.9%, followed by a 4.7% gain in health care. Manufacturing and consumer companies were modestly positive, returning 0.2% and 0.4% respectively.

Venture Capital (VC) Performance Insights

Calls and distributions both fell, the latter sharply

As in the PE Index, fund managers in the venture capital index called and distributed far less capital in Q3 than they did in the prior quarter. Calls dropped 13.0% to $3.6 billion, while distributions suffered an even greater decline, falling 45.1% to $5.1 billion. In parallel with the PE Index, Q3 marked the 15th consecutive quarter in which distributions in the VC index outpaced contributions.

Almost two-thirds (64%) of the total capital called in Q3 came from funds formed from three consecutive vintage years: 2012, 2013 and 2014. The bulk of distributions (69%) during the quarter went to LPs of funds formed in 2004, 2006-2008 and 2010. Each of these vintage years distributed more than $550 million in the quarter.

Funds raised in 2011 had the highest return in Q3 among the largest vintages

Seven vintages in the VC index were meaningfully sized at the end of Q3; three of them had gains for the quarter while the other four declined. The best performer of the seven was the 2011 vintage, which returned 7.0%, helped primarily by significant write-ups in health care and information technology (IT) companies. Write-downs in health care were the principal culprit of the poorest performing of the large vintages, 2005, which dropped 3.4% during the period.

"Of the four largest vintage years (2006-08 and 2010), three (2006-08) were down during the quarter. Similar to in the public markets, losses in the health care sector were one of the drags on performance in all but the 2007 vintage. This was a sharp reversal from the prior three quarters when health care performed strongly in the VC index as well as the public markets, and reflects the current volatility in the market," said Theresa Sorrentino Hajer, managing director, Private Growth Research.

Software was best performing sector for the quarter

Only three sectors in the VC index were meaningfully sized, and two of them had positive returns. Software led the way with a gain of 3.1%, followed by IT, which was up 1.2%. Health care, the second largest sector in the index (behind IT) and representing one quarter of its value, returned -3.9%.

While not meeting the definition of meaningfully sized, electronics companies represented more than 4% of the index and were down 1.3% for the quarter.

For additional details on the performance of the Cambridge Associates private equity and venture capital benchmarks in the second quarter go to [].

About the Indexes
Cambridge Associates derives its U.S. private equity benchmark from the financial information contained in its proprietary database of private equity funds. As of September 30, 2015, the database comprised of 1,231 U.S. buyouts, private equity energy, growth equity, and mezzanine funds formed from 1986 to 2015, with a value of $598 billion. Ten years ago, as of September 30, 2005, the index included 632 funds whose value was $190 billion.

Cambridge Associates derives its U.S. venture capital benchmark from the financial information contained in its proprietary database of venture capital funds. As of September 30, 2015, the database comprised 1,605 U.S. venture capital funds formed from 1981 to 2015, with a value of roughly $196 billion. Ten years ago, as of September 30, 2005, the index included 1,080 funds whose value was about $60 billion.

About Cambridge Associates

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 nearly 1,000 global investors and delivers a range of services, including investment consulting, outsourced investment solutions, research and tools (OptiCA digital platform), and performance monitoring, across asset classes. The firm compiles the performance results for more than 5,600 private partnerships and their nearly 70,000 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 1,200 employees serving its client base globally and maintains offices in Arlington, VA; Boston; Dallas; San Francisco; 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 African Private Equity and Venture Capital Association (AVCA); Australian Private Equity & Venture Capital Association Limited (AVCAL); Canada's Venture Capital and Private Equity Association (CVCA); the Hong Kong Venture Capital and Private Equity Association (HKVCA); the Indian Private Equity and Venture Capital Association (IVCA); Institutional Limited Partners Association (ILPA); the Latin American Private Equity and Venture Capital Association (LAVCA); the National Venture Capital Association (NVCA); and the New Zealand Private Equity & Venture Capital Association Inc. (NZVCA). Cambridge Associates 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,

This release is provided for informational purposes only and is not intended to be investment advice. Any references to specific investments are for illustrative purposes only. The information herein does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. This release is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. Past performance is not a guarantee of future returns. With regard to any references to securities indices, such indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds. Investments cannot be made directly in an index.

Inquiries about these indices should be addressed to: Eric Mosher at Sommerfield Communications, 55 Broad Street, 20th Floor, New York, NY 10004; 212.255.8386; (fax) 212.255.8459;

Contact Information