Cambridge: Private equity returns 13.8% in ‘09

Cambridge’s private equity index shows that the fourth quarter of 2009 was one of the best since 2007 and contributed to a 13.8% return for all of 2009.

Private equity performance was up 36 percent in 2009 from 2008, and ended the year with a return of 13.8 percent, according to Cambridge Associates.

Certain sectors contributed to private equity’s positive performance over 2009. Consumer, energy and healthcare earned between 3.3 percent and 8.8 percent, with consumer as the best performer, Cambridge said.

“During the fourth quarter we saw private company values grow the most in retail, healthcare and manufacturing sectors, likely a result, at least in part, of an increase in spending during the holiday season,” Cambridge said.

“And, for the second consecutive quarter, net asset valuations for private equity funds raised in each of the right vintage years from 2000 to 2007 increased by about $1 billion or more,” Cambridge said.

The 2006 vintage saw write-ups of $500 million or more in retail, healthcare, manufacturing, financial services and media, which led to a 6.5 percent return, Cambridge said.

Private equity managers distributed more than $10 billion to investors during the fourth quarter, about $6 billion more than the third quarter, Cambridge said. Capital calls were up in the fourth quarter, with private equity managers calling roughly $14 billion from investors.

The distribution numbers experienced a dramatic change earlier this year. According to State Street Private Equity Index, which tracks about $1.5 trillion in LP commitments  globally, the three-month period from February to April 2010 saw a surge in distributions. For the year-and-a-half up to January 2010, State Street’s distribution-to-drawdown ratio rarely exceeded 0.2, meaning that the anemic deal activity was exceeded only by the even more anemic distribution activity. But that changed dramatically in February, when the ratio jumped to 1.0 – in other words, distributions levels are on par with drawdown levels.

Cambridge’s private equity index includes 787 funds. The benchmark is capital-weighted so funds representing large amounts of the index’s value are mostly responsible for its performance.