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Energy led US PE returns in 2016, study finds

The Cambridge Associates US private equity index had its best year since 2013.

A good year for private equity energy assets in 2016 helped deliver the strongest US private equity performance since 2013, according to data recently published by Cambridge Associates.

The energy sector was the best performing sector in Cambridge’s private equity index, returning 26.1 percent in 2016, after two years of mediocre returns.

For 2016, the Cambridge Associates US Private Equity index returned 12.9 percent, up from 5.9 percent for the previous year, when for the second year in a row energy companies dampened the private equity return.

“Energy posted the highest return for the quarter, seven vintages (2007-2008 and 2011-2015) had more than $900 million in write-ups in the sector,” Cambridge Associates noted in its report. “Write-ups for energy companies were widespread and totalled $18 billion for the year.”

Cambridge Associates’ private equity index has a 15.4 percent exposure to energy, the third largest sector after consumer discretionary and information technology, which represent 17.8 percent and 21.4 percent of the index respectively.

In 2015, the energy sector returned negative 20.1 percent. That year, depressed energy prices negatively impacted unrealised valuations for a key sector, leading to write-down in energy equaling to more than $5 billion for the year, Cambridge Associates said a year ago. Energy losses were particularly a drag on 2006 and 2007 vintage funds.

Other strong performing sectors in 2016 included healthcare, which returned 16.4 percent for the year, and IT, which returned 16 percent. The worst performers were financial, which returned 10.3 percent, and consumer discretionary, which returned 10.5 percent.

Cambridge Associates bases its US private equity benchmark on financial information contained in its database of private equity funds, which as of 31 December was made up of 1,370 US buyouts, private equity energy, growth equity, and mezzanine funds, formed from 1986 to 2016. The funds had a value of $653.9 billion.

US private equity index and sector returns:

 Q4 2016 Returns (%)  2016 Returns (%)
 CA US Private Equity 4.5 12.9
 Consumer Discretionary 2.4 10.5
 Energy 12.5 26.1
 Financials 5.7 10.3
 Healthcare 4.1 16.4
 Industrials 3.9 13.5
 IT 4.1 16.0

Source: Cambridge Associates