Private equity returns remained relatively flat in the first three months of the year, according to State Street’s GX Private Equity Index, which saw an overall return of 0.65 per cent for the period.
The index, which includes a dataset dating back to 1980, is based on directly sourced limited partnership data and represents more than USD2 trillion in private equity investments, with more than 2,500 unique private equity partnerships, as of 31 March 2016.
State Street says the return of US-focused funds remained unchanged from the previous quarter. Among all three main strategies, venture capital posted a loss of 2.06 per cent, while buyout and private debt funds recorded 0.67 per cent and 0.32 per cent gains, respectively. For the one-year return, US private equity funds recorded a 2.8 per cent gain.
The rolling one-year return of venture capital presented a downward trend, dropping to 5.86 per cent in Q1 2016 from 29.4 per cent at its peak in Q2 2014.
Although European-focused private equity funds booked another strong quarter (3.51 per cent in USD denominated return) this is due to a tailwind from the exchange rate. The EUR-denominated return was -1.26 per cent, with the EUR appreciating about 4.9 per cent in Q1 2016, then dropping 2.5 per cent in Q2.
In terms of cash flow ratios, European-focused funds have the most exit activity over the past three years, with a Distribution to Commitment (DCC) ratio of 1.18. Meanwhile, funds in emerging markets and Asia-Pacific region have more new active deals than the other regions, with a Paid-In Capital to Commitment (PICC) ratio of 1.10.
“During the first quarter of 2016 the return on US-focused funds remained flat from the fourth quarter of 2015,” says Will Kinlaw, senior managing director and global head of State Street Associates, a division of State Street Global Exchange. “Due to the lag in valuation reporting, this release does not yet include the UK’s decision to leave the European Union in late June 2016, but ahead of Brexit, European-focused private equity funds posted another strong quarter.”
“Public market uncertainty and larger macro-economic concerns likely caused the decline in returns for venture capital during the quarter,” says Anthony Catino, managing director, Alternative Investment Solutions for State Street. “Despite this decline, we continue to see investors, specifically limited partners and asset owners, who understand these returns have historically been cyclical, using venture capital funds as a diversification mechanism and increasing their exposure to the asset class.”
