Non-US PE/VC Managers Post Double Digit Returns in 2Q '17
Private equity (PE) and venture capital (VC) managers based in developed markets outside the US returned 10.2% in the second quarter of 2017 and 14.7% for the first half of the year, measured in US dollar terms, according to the Cambridge Associates LLC Global ex US Developed Markets PE/VC Index, a benchmark of the alternative asset classes published by global investment firm Cambridge Associates. Measured in euros, the quarterly and first-half returns were 3.3% and 6.1%, respectively.
The Global ex US Developed Markets PE/VC Index outperformed the comparable public market index so far in 2017. The MSCI EAFE index, which measures public equity performance in developed markets outside the US, returned 6.1% in Q2 2017 and 13.8% for the first two quarters of the year, in USD terms. In euro terms, the MSCI EAFE returned -0.5% in Q2 2017 and 5.3% over the first half of the year.
“Private investments in developed markets outside the US continue to generate strong returns compared to public equities, over both long and short time periods,” says Andrea Auerbach, Head of Global Private Investments at Cambridge Associates.
PE/VC Managers in Emerging Markets Returned 3.3% in Q2 2017
Meanwhile, PE and VC managers based in emerging markets posted a 3.3% return in Q2, and a 7.5% return for the first two quarters of the year, according to the Cambridge Associates LLC Emerging Markets PE/VC Index, another regional alternative asset benchmark published by Cambridge Associates. The Emerging Markets PE/VC Index underperformed the comparable public market index, the MSCI Emerging Markets Index, which returned 6.4% for the second quarter and 18.6% for the first half of 2017.
“Alternative investment managers in emerging markets have underperformed public markets in the region so far this year, but they have generated stronger returns than public equities over longer time horizons,” says Vish Ramaswami, Managing Director at Cambridge Associates.
Cambridge Associates derives its Global ex US PE/VC Indexes from the financial information contained in its proprietary database of nearly 900 PE and VC funds in developed markets outside the US and nearly 650 PE and VC funds in emerging markets, with a combined value of roughly $458 billion.
Table 1. Returns for the Global ex US Developed and Emerging Markets PE/VC Indexes vs Public Counterparts
Periods Ending June 30, 2017 • Percent (%)
QtrYTD1 Yr3 Yr5 Yr10 Yr15 Yr20 Yr25 Yr
CA Global ex US Dev Mkts PE/VC (US$)10.214.721.18.012.36.813.813.513.3
CA Global ex US Dev Mkts PE/VC (€)126.96.36.1996.414.98.913.513.513.5
MSCI EAFE (US$) mPME6.113.8188.8.131.52.184.108.40.206
MSCI EAFE (€) mPME-0.55.317.47.6220.127.116.11.45.7
MSCI World/MSCI All Country World (US$) mPME*4.511.919.44.518.104.22.168.76.9
CA Emerging Markets PE/VC (US$)3.37.511.49.411.39.611.09.49.4
MSCI Emerging Markets (US$) mPME**6.418.622.214.171.124.07.46.16.3
MSCI World/MSCI All Country World (US$) mPME*4.511.819.55.6126.96.36.199.76.9
MSCI EAFE (US$) AACR6.129.5188.8.131.52.06.34.35.9
MSCI EAFE (€) AACR-0.510.817.17.511.02.75.34.26.9
MSCI Emerging Markets* (US$) AACR**6.440.7184.108.40.206.211.05.87.5
MSCI World/MSCI All Country World (US$) AACR*4.525.019.45.41220.127.116.11.97.9
Sources: Cambridge Associates LLC, MSCI Inc., Standard & Poor’s, and Thomson Reuters Datastream. MSCI data provided “as is” without any express or implied warranties.
Notes: The PE/VC indexes are pooled horizon internal rates of return and are based on limited partners’ fund-level performance; the returns are net of fees, expenses, and carried interest. Because the indexes are capital weighted, performance is mainly driven by the largest vintage years. Public index returns are shown as both time-weighted returns (average annual compound returns) and dollar-weighted returns (modified public market equivalent). The Cambridge Associates mPME replicates private investment performance under public market conditions. The public index’s shares are purchases and sold according to the private fund cash flow schedule, with distributions calculated in the same proportion as the private fund, and mPME net asset value is a function of mPME cash flows and public index returns.
* MSCI All Country World Constructed Index: Data from 1/1/1986 to 12/31/1987 represented by MSCI World Index gross total return. Data from 1/1/1988 to present represented by MSCI ACWI gross total return.
** MSCI EM Constructed Index: Data from 1/1/1986 to 12/31/1987 represented by GFD Emerging Markets price return. Data from 1/1/1988 to present represented by MSCI Emerging Markets gross total return.
A few highlights from the Global ex US Developed Markets PE/VC Index in Q2 2017:
- Distributions to PE and VC investors in developed markets outside US rose in Q2 2017. PE and VC managers in the ex US Developed Markets Index distributed $17.8 billion to investors during Q2 2017, and called $8.2 billion from investors during the quarter.
- Investments in materials companies by PE and VC managers outside US outperformed other sectors in Q2 2017. Among the six sectors each worth 5% or more of the ex US Developed Markets Index, materials investments performed the best in Q2, with a return of 13.4%. The lowest performer among the major sectors in Q2 was health care, which posted a 9.1% return. Consumer companies garnered 40% of investments for the quarter.
- The Netherlands outperformed other countries in the ex US Developed Markets Index in Q2 2017. Companies based in The Netherlands posted a 17.0% return in Q2 2017, better than other companies in the ex US Developed Markets Index. US companies returned 7.1%, the lowest quarterly return in the index. (Funds in the ex US Developed Markets Index primarily invest in companies in Europe, but occasionally make investments in US companies as well.)
- Funds raised in 2007 by non-US developed market PE/VC managers generated strongest returns in Q2 2017. Funds in the ex US Developed Markets PE/VC Index raised in 2007 posted a 13.4% return in the second quarter of 2017. That’s almost 900 basis points higher than the 2008 vintage year’s return in Q2 2017, 4.8%.
Some takeaways from the Emerging Markets PE/VC Index in Q2 2017:
- Distributions to emerging market PE/VC investors in Q2 2017 were third highest in four decades. In the second quarter of 2017, PE and VC managers in emerging markets distributed over $7.3 billion to investors, a 66% increase from Q1 and the third highest quarterly distribution since the inception of the Index in 1986. Managers in the Index called $4.5 billion from investors in Q2 2017.
- Highest returns for PE/VC managers in Q2 2017 were from consumer discretionary companies. Consumer discretionary companies in the Emerging Markets PE/VC Index posted a 7.2% return in Q2 2017, while information technology companies posted a 3.7% return, the lowest of the major sectors in the Index.
- PE/VC investments in South Korean businesses outperformed those in India and China in Q2 2017. Companies in the Emerging Markets Index based in South Korea returned 8.5% during Q2 2017, while Indian and Chinese firms in the Index returned 3.2% and 2.8%, respectively, for the quarter.
- Strongest returns in PE/VC in emerging markets in Q2 2017 were from funds raised in 2013. Funds in the Emerging Markets PE/VC Index raised in 2013 posted a 6.3% return during Q2 2017. Funds in the Index raised in 2008 performed worst, with a 1.6% return for the quarter.