Cambridge: Tech deals drive PE outperformance in H1 2018

Investments in technology are behind the high returns recorded by private equity and venture capital funds in the first half of 2018.

Cambridge Associates’ latest data show that private equity funds in developed markets outside the US, or the Global ex-US Developed Markets Private Equity Index, returned 20.4 percent for the year ending 30 June 2018, higher than the 14.7 percent recorded during the corresponding period the previous year.

According to Cambridge, PE-backed technology investment delivered the highest returns (20.6 percent) of all sectors in the first half of 2018. Consumer staples came in with the second-highest returns (13.3 percent), followed by healthcare (12.5 percent) and materials (5 percent), among others.

“Private equity funds have made a calculated bet on overweighting technology which has paid off,” Nicolas Schellenberg, head of EMEA PE & VC Research at Cambridge Associates, said in a statement accompanying the report. “That outperformance is not the result of luck or chance.”

Blue-chip investors Blackstone, Carlyle Group and Canada Pension Plan Investment Board have made big bets in the sector in the last year.

Thomson Reuters’ Financial & Risk business, now known as Refinitiv, was bought for $17 billion by a consortium of buyers led by Blackstone including GIC and CPPIB. China’s Ant Financial had a $14 billion financing round led by Carlyle Group including GIC and CPPIB, as well as Warburg Pincus, Silver Lake, Sequoia Capital and Temasek, among others.

However, private equity is a lagging asset class, and the recent dip in technology valuations in the public markets is yet to be reflected in valuations, Schellenberg said.

Over the same period, private equity funds in developed markets in Europe, Australasia and Asia also outperformed the equivalent index for listed companies, the MSCI EAFE Index, which returned just 6.9 percent.

Looking at return figures by country, PE investment in companies in the Netherlands (15.5 percent) and Sweden (10.4 percent) contributed the most to returns. German companies, meanwhile, were the worst performers at 2.6 percent.

Emerging markets-focused private equity funds, or the Global ex-US Emerging Markets Private Equity Index, also showed positive returns in H1 2018, according to Cambridge. These funds returned 17.2 percent over the last year. This index also outperformed its equivalent for listed companies, the MSCI Emerging Markets Index, which returned 8.4 percent over the same period.