Despite the headwinds facing public markets, private equity continues to represent an alternative investment strategy that is delivering sustained investor returns.
The realities of today’s public markets, such as continued volatility driven by external events — from fiscal crises in Europe to political gridlock in Washington — combined with normal gyrations from quarterly earnings expectations and high frequency trading, have gradually separated the stock market index from the economic cycle.
And as public markets finally edge back to pre-downturn levels, public market investors must face the discouraging fact that recent stock market gains — while encouraging — have merely returned market values to where they were five years ago.
"Over the past several years, traditional portfolios of stocks and bonds have largely failed in their core mission to create wealth, generate income, and secure long-term retirement savings, while the private equity market has been providing investors with a reliable avenue to participate in the steady economic growth that surrounds us," says Rick Nathan (pictured), managing director, Kensington Capital. "Private equity represents an investment in the real economy, where wealth creation is based on real measures such as earnings growth and profitability, and the abilities of private equity managers to translate these measures into tangible gains for investors."
This wealth creation has translated into strong performance for the Kensington Global Private Equity Fund, which today announced a record distribution of USD2.13 per unit, representing a 9.8 per cent payout. After this latest distribution, fund investors will have received a total of USD3.69 per unit (16.9 per cent) within the past 12 months.
Canada’s largest institutional investors, which require steady long-term portfolio gains to fund their pension obligations, have also participated in the growth of private equity markets and are continuing to allocate more and more capital to the sector. In particular, the Canada Pension Plan Investment Board (CPPIB), Canada’s, largest investor, held 17.1 per cent of its total assets in private equity investments as of 31 December 2012, while OMERS increased its private market investments (consisting of private equity, real estate and infrastructure) to 40 per cent during the 2012 period. Globally, according to Preqin’s Investor Outlook, a strong majority (85 per cent) of large international investors stated that their private equity portfolio returns met or exceeded expectations in 2012, and almost a third (27 per cent) expect to increase their level of exposure to private equity in 2013.
Investment in private markets remains promising, with private equity activity continuing an upward trajectory. Canada’s Venture Capital & Private Equity Association (CVCA) and Thomson Reuters last week released a joint report showing that the 2012 private equity market saw the highest deal volume on record. According to the report, disclosed Canadian buyout and private equity disbursements totalled USD11.6bn in 2012, marking the highest level of dollars invested in the Canadian market since 2008. Private equity transactions totalled 313, up four per cent from 2011 and establishing a new market record.
The Kensington Fund invests in a diversified portfolio of private companies and funds, typically holding each underlying company for a period of three to five years before selling to a larger corporation or into the public markets through an IPO.
