Data Room: Beating the benchmark

Private equity investments in emerging markets outperformed their counterparts in developed regions, excluding the US, in the fourth quarter and across the entire year in 2014, according to Cambridge Associates.

The Cambridge Associates Emerging Markets Private Equity and Venture Capital Index increased 4.5 percent in the fourth quarter of 2014 and 14.3 percent over the year. By comparison, the MSCI Emerging Markets Index lost 4.4 percent in the quarter and 1.8 percent over the 12 months.

Cambridge Associates’ emerging markets index outperformed its benchmark for all other periods observed: three-, five-, 10-, 15- and 20-year, returning 12.9 percent, 12.2 percent, 12.4 percent, 9.8 percent and 9.6 percent, respectively.

These favourable returns, along with positive but modest developed market returns outside the US, were partly due to strong exit environments last year. Cambridge Associates also pointed to the record number of private equity-backed IPOs in Europe and of M&A activity in Asia.

Annual cashflows reached an all-time high in emerging markets last year as LPs of emerging markets funds received $21.2 billion in distribution, up 19 percent from 2013. In the same period, they contributed a record amount to funds as well, committing $18.3 billion, 37 percent higher than the previous year, according to Cambridge Associates managing director Vish Ramaswami.

In the final quarter, LPs received $5.8 billion in distribution, the third biggest quarterly distribution in the index’s history, he said.

The emerging markets index was concentrated in China and India by the end of last year. China represented 43 percent of the index, while India accounted for 9.2 percent. They were the only countries representing more than 5 percent of the total index value.

Cambridge Associates said Chinese companies earned 17.2 percent in the quarter and gained 33.4 percent in the year, mar-king the strongest performance of major EM regions.

GPs maintained high flows of their investment capital into China: almost five times as much capital went to China in the fourth quarter as the second most popular country.

Cambridge Associates’ emerging markets index is based on financial data involving 552 emerging markets funds established between 1986 and 2014 worth about $149 billion.