Friday, March 22, 2013

Private Equity and Venture Capital Investments in ex U.S. Developed and Emerging Markets Posted Positive Returns in Q3 2012, Bouncing Back From a Negative Second Quarter,

Private equity and venture capital funds that invest primarily in companies located outside the U.S., in both developed and emerging markets, generated positive returns during the quarter ending September 30, 2012. While trailing the performance of international public equity indices during the period, both alternative asset groups improved significantly from negative results in the second quarter, according to global institutional investment advisor Cambridge Associates LLC (C|A).

The Cambridge Associates LLC Global ex U.S. Developed Markets Private Equity and Venture Capital Index earned 3.1% in the third quarter, up 4.6% over the prior quarter. For the first three quarters of 2012, the index was up 9.1%. The Cambridge Associates LLC Emerging Markets Private Equity and Venture Capital Index rose 2.6% in the third period, a 5.3% quarter-over-quarter improvement; year to date, the index earned 6.2%. Returns for both the developed and emerging markets indices are calculated in U.S. dollars.

The following table shows the performance of both C|A benchmarks versus comparable public market indices over a variety of time horizons ending on September 30, 2012.

Global ex U.S. Developed and Emerging Markets Private Equity and Venture Capital Indices
Returns (%) in U.S. Dollars
Periods ending September 30, 2012
For the periods ending September 30, 2012   Qtr.   Year to Date   1






Ex U.S. Developed Markets PE and VC   3.1   9.1   9.0   12.1   1.5   14.6   13.7   13.4
Emerging Markets PE and VC   2.6   6.2   7.1   12.7   6.9   11.8   7.9   7.7
Other Indices
MSCI EAFE   6.9   10.1   13.8   2.1   -5.2   8.2   3.4   5.5
MSCI Emerging Markets   7.9   12.3   17.3   6.0   -1.0   17.4   7.5   8.9

Sources: Cambridge Associates LLC, MSCI Inc., and Thomson Reuters Datastream. MSCI data provided "as is" without any express or implied warranties. Returns for time periods shorter than a year are not annualized.

Both the developed and the emerging markets indices outperformed their public equity counterparts, the MSCI EAFE and the MSCI Emerging Markets indices, over the longest investment periods in the table, the 15- and 20-year marks. 

The Five Largest Vintages in the Developed Markets Index, and the Four Largest in the Emerging Markets Index, all had Positive Returns for the Quarter

Funds launched in 2008 were the best performers of the five significantly-sized vintages (i.e. those accounting for at least 5% of the index's value) in the developed markets index, earning 6.4% for the third quarter. All five (vintage years 2004 - 2008) rose during the quarter. The largest vintage in the index, the group of funds launched in 2006 and representing 29.4% of the index's value, returned 2.3%, the lowest of the top five.

In the emerging markets index, only four vintages were significantly sized, but all four earned positive returns for the period -- a complete reversal from the previous quarter, when all posted negative returns. Of the four, the 2006 and 2007 vintages each gained 3.5%, while the 2005 and 2008 vintages each earned 2.3%. The 2007 vintage remained the largest in the index and represented 36.7% of its total value.

Capital Calls and Distributions Rose in the Developed Markets Index; in the Emerging Markets Index, Distributions also Increased, but Contributions Fell

Fund managers in the developed markets index summoned more cash from their investors during the third quarter than in the second -- about $7.9 billion, a 29.4% increase. Nearly 67% of the total capital called during the quarter came from investors in three vintage years: 2007, 2008, and 2011. Fund managers also increased distributions, to $14.7 billion. This was a 65.0% jump over the prior period and marked the sixth time in the last seven quarters in which distributions outpaced contributions. About 75% of the distributions during the quarter went to the limited partners of funds raised in 2005, 2006, and 2007.

Contributions in the emerging markets index during the third quarter fell 5.7%, to $3.8 billion. Almost 83% of this amount came from four vintages: 2007, 2011, 2010, and 2006. Investors in funds in the emerging markets index saw a 91.7% increase in distributions in the third quarter, to $2.1 billion, though this followed a second period in which distributions were at their lowest quarterly level in three years. Vintage years 2005 and 2007 together accounted for 60% of all distributions during the quarter. 

"Fund managers in both indices gave us the biggest jump in distributions that we've seen in some time," said Miriam Schmitter, Managing Director. "In each case, the bulk of the distributions were driven by a small number of vintages -- the 2005 through 2007 vintage year funds in the developed markets index and the 2005 and 2007 vintages in the emerging markets index. The exit environment in Europe has been healthy, supported by recovering debt markets." 

Healthcare was the Top Earning Large Sector in the Developed Markets Index, while Financial Services Led the Way among the Largest Sectors in the Emerging Markets Index

Healthcare companies in the developed markets index generated a 5.1% return for the third quarter, which was the best of the seven significantly-sized sectors. Of the seven, only one sector, media, had a negative result for the quarter, and it fell only 0.1%. During the quarter, consumer and healthcare companies attracted the first and second largest amounts of investment capital, a combined 43% of the total.

All five of the significantly-sized sectors in the emerging markets index had positive returns for the quarter. Financial services topped the list with a 6.2% return, followed by a 4.2% return for healthcare. Manufacturing was the poorest performing large sector, rising 1.6%. Companies in the consumer sector, which represented almost a quarter (23.9%) of the index's value, received 37% of the total invested capital during the quarter, the largest of any individual sector in the index and the fourth consecutive quarter in which consumer companies were the leading recipients of investment dollars.

Companies in the U.S. were the Best Performers among the Largest Regions in the Developed Markets Index, though Companies in Japan Led overall

The U.K. remained the largest regional component of the developed markets index during the third quarter, representing 13.9% of the index's value; companies in the U.K. returned 3.6% for the period. The U.S. was the performance leader among the five largest regions by investment value in the index, returning 4.5%. The other three top regions were Sweden and Germany, each of which returned 3.5%, and France, which rose 1.7%. Companies in Japan, however, were the top performers in the index overall, earning 15.9%.

In the emerging markets index, only three regions represented more than 5.0% of the index: Mainland China, India, and South Korea. China was the single largest region in the index, accounting for 35.6% of its value, and it turned in a negative performance for the quarter, falling 1.4%. India represented 10.7% of the index and had by far the best quarter of the top three regions, earning 9.0% for the quarter. South Korean companies generated a 2.0% return and represented 5.6% of the index.

Western Europe and Emerging Asia Continued to Attract the Bulk of Investment Capital

Fund managers in the developed markets index ploughed more than 63% of their investment dollars into companies located in Western Europe, which, while following a long-established trend, was 15% less than the historical average. Companies in the U.S. and Australia attracted the second and third largest amounts of investment capital, respectively, in the index.

Companies located in emerging Asia were the biggest beneficiaries of investment capital in the emerging markets index, collecting 76% of the total for the quarter.

For further details on the performance of the C|A developed and emerging markets indices for Q3 2012, please click here.

About the Indices

Cambridge Associates derives its Global ex U.S. Developed Markets Private Equity and Venture Capital benchmark from the financial information contained in its proprietary database of global ex U.S. and emerging markets private equity and venture capital funds. As of September 30, 2012, the database comprised 694 funds formed from 1986 to 2012 with a value of about $251 billion. By way of comparison, ten years ago at September 30, 2002, the benchmark index included 318 funds whose value was roughly $39 billion.

Cambridge Associates derives its Emerging Markets Private Equity and Venture Capital benchmark from the financial information contained in its proprietary database of emerging markets venture capital and private equity funds. As of September 30, 2012, the database comprised 417 funds formed from 1986 to 2012 with a value of roughly $98 billion. By way of comparison, as of September 30, 2002, the benchmark index included 150 funds whose value was about $13 billion.

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.

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 over 900 global investors and delivers a range of services, including investment consulting, outsourced investment solutions, research and tools (Research Navigator(SM) and Benchmark Calculator), and performance monitoring, across asset classes. The firm compiles the performance results for more than 5,000 private partnerships and their more than 65,000 portfolio company investments to publish proprietary private investments. 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 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 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).

Thursday, March 7, 2013


China stays ahead of the U.K. in investment, but drops behind in deal flow

Venture capital investment in mainland China experienced a decline during the fourth quarter, with companies raising $854 million, a drop of 42% from the same period a year ago, according to Dow Jones VentureSource. The number of deals completed over the three month period also fell, by 52% to 39 in total.

Overall in 2012, investment declined by 40% from 2011 levels to $3.7 billion, with the number of deals falling by 44% to 202. China stayed ahead of the U.K. in terms of investment, where companies raised €1.4 billion, but not in deal flow, as the U.K. completed 295 deals. Europe as a whole collected €4.4 billion in 1074 deals. The U.S. raised $29.7 billion for 3,363 deals.

So far, 2011 has been the highest year on record for investment in mainland China, with US$6.2 billion deployed across 362 deals over that 12-month period.

Commenting on the decline, Guido Schenk, Asia Pacific sales director for Dow Jones VentureSource, said, “Although the decline of VC investments during 2012 follows similar trends to those recorded in 2008, the key difference was that last year the share of profitable companies to receive VC funding was much smaller than it was five years ago. Given that companies need to be profitable prior to IPO in China, it is unlikely that 2012 VC investments will lead to the same boom of IPOs that we witnessed between 2009 and 2011."

In addition, IPOs as a main exit route for Chinese VC investments showed a sharp decline in the fourth quarter, where only three IPOs were recorded; a fifth of the number recorded in the same period a year earlier. From these, only $167 million was raised, the lowest number in China since 2009, and just 10% of the amount raised in the fourth quarter of 2011.

Continuing Investment Declines for Most Industry Groups

Investment in Consumer Services, the leading industry for venture capital in China, declined by 35% to $591 million during the fourth quarter of 2012. Deal flow declined by 59% to 17 deals completed.

Despite receiving 55% of all venture capital invested in China during 2012, overall Consumer Services investment and deal flow declined by 42% and 44% respectively from 2011, with $2 billion collected in 96 deals.

Information Technology (IT) managed to secure the second largest allocation, despite a 46% decline in investment and a 39% drop in the number of completed deals year-over-year. The industry collected $536 million for 43 deals. This decline was due largely to a weak fourth quarter in which investment amounted to $34 million for 6 deals, a respective 83% and 63% drop from the same quarter a year earlier.

Financial Services Rounds Out a Strong Year

Investment in Business and Financial Services companies defied the downturn during the year with the industry collecting $458 million, a 2% uptick from 2011. Deal activity fell, however, by 41% to 27 completed. The uptick in investment was a result of a strong year for the Financial Institutions and Services sector, in which seven venture capital deals amassed $203 million.

Investment in the Healthcare industry fell in 2012, with 11 deals collecting $179 million, a respective drop of 15% and 45% from 2011 figures. Biopharmaceuticals, the dominant industry segment, experienced a drop of 68% in capital invested and 29% in deals completed, with companies raising $85 million in a total of five deals. In contrast, Medical Devices and Equipment companies managed to garner $70 million for four venture capital deals, doubling the equivalent figures for 2011.

Energy and Utility companies also experienced substantial drops in venture capital invested during 2012. The industry collected $58 million, a decrease of 48% from 2011. Deal flow halved from eight in 2011 to four completed for 2012.