State Street Corporation’s GX Private Equity Index (PEI) saw an overall return of 3.8 per cent in the third quarter of 2016, with buyout, private debt and venture capital each posting positive returns.
“Following record years of exit activity in 2014 and 2015, private equity firms are cautiously putting money to work,” says Will Kinlaw, senior managing director and global head of State Street Associates, a division of State Street Global Exchange.
“Despite the second half of 2016 representing some of the lowest levels of private equity deal activity, we continue to be encouraged by positive and meaningful gains in returns in all three private equity categories.”
The PEI is based on directly sourced limited partnership data and represents more than USD2.5 trillion in private equity investments, with more than 2,600 unique private equity partnerships, as of 30 September 2016.
Despite the slowdown in activity, venture capital recovered from its previous two quarters of lacklustre returns, posting a quarterly gain of 3.72 per cent in Q3 (up from 0.28 per cent in Q2). Buyout and private equity funds gained 3.86 per cent (up from 3.41 per cent in Q2) and 3.59 per cent (up from 2.61 per cent in Q2) in Q3, respectively.
Among all three main strategies, buyout recorded the highest one-year return of 10.38 per cent as of Q3 2016, while venture capital and private debt recorded returns of 4.72 per cent and 6.13 per cent, respectively, for the same period.
While Q3 2016 was another quiet quarter for the global IPO markets, towards the end of 2016, there was a bounce-back in private equity deal activities with both monthly capital drawdown and distribution ratio picking up significantly.
European-focused private equity funds recorded a strong quarter, 4.08 per cent in USD-denominated returns, up from 0.67 per cent in the previous quarter. One-year returns also increased, at 10.82 per cent at the end of September 2016, up from 7.27 per cent in the previous quarter.
“Volatility in the market as a result of 2016 geopolitical events is causing investors to hold off on making bold investment decisions,” says Anthony Catino, managing director, Alternative Investment Solutions for State Street. “Once instability subsides, we anticipate an increase in investor activity.”
