European, emerging markets distributions soar(2)

Realisations from 2005-2007 vintage funds – boosted in part by Europe’s improving debt markets – caused a significant spike in third quarter realisations, according to data released this week by Cambridge Associates.

Fund managers in Europe and other developed markets outside the US distributed $14.7 billion to their investors in the third quarter of 2012 – a 65 percent increase from the previous quarter. It represents the sixth time in the past seven quarters that distributions have outpaced capital calls, according to Cambridge Associates.

Emerging markets-focused GPs’ distributions were even more eye catching: the $2.1 billion distributed to LPs represented a 97 percent quarterly increase, however Cambridge noted this followed a period when distributions were “at their lowest quarterly level in three years”. 

“Fund managers in both indices gave us the biggest jump in distributions that we’ve seen in some time,” Miriam Schmitter, Cambridge managing director, said in a statement. “In each case, the bulk of the distributions were driven by a small number of vintages – the 2005 through 2007 vintage year funds in the developed markets index and the 2005 and 2007 vintages in the emerging markets index. The exit environment in Europe has been healthy, supported by recovering debt markets.”

The exit environment in Europe has been healthy, supported by recovering debt markets.

Miriam Schmitter

Capital calls, meanwhile, were up 29.4 percent for the developed markets (ex-US) in the third quarter, with GPs calling some $7.9 billion in commitments, mostly from the 2007, 2008 and 2011 vintages. In emerging markets, contributions dropped by 5.7 percent to $3.8 billion.  

Returns for both groups improved in the third quarter. Cambridge’s private equity and venture capital index for non-US developed markets earned 3.1 percent in the third quarter, up 4.6 percent from the prior quarter. Cambridge’s emerging markets private equity and venture capital index rose 2.6 percent during the period, a 5.3 percent quarter- over-quarter improvement. 

International public equity indices outpaced the private equity indices in the developed and emerging markets during the quarter, Cambridge said, however both private equity indices outperformed their public equity counterparts over 15- and 20-year investment period. 

The UK remained the largest region in the index, representing 13.9 percent of the index value. Companies in the UK returned 3.6 percent during the quarter. Among the other top performers in Europe were Sweden and Germany, which each returned 3.5 percent and France, which returned 1.7 percent. In the overall index, Japan was the best performer, returning 15.9 percent.   

Despite subdued consumer confidence in Western Europe, the most investments in the developed markets occurred in the consumer sector, closely followed by investments in the healthcare space. Together, the two sectors attracted more than 43 percent of the invested capital, nearly 6 percent higher than the long-term norm. In emerging markets, financial services performed the best, returning 6.2 percent, followed by a 4.2 percent return in healthcare. 

Cambridge draws up its indices from the financial information contained in its database of global non-US developed markets private equity and venture capital funds and emerging markets private equity and venture capital funds. The pooled returns represent the net end-to-end rates of return calculated on the aggregate of all cash flow and market values as reported to Cambridge Associates by the funds’ GPs in their quarterly and annual audited financial reports.  The returns are net of management fees, expenses and performance fees that take the form of a carried interest, Cambridge said.