Red Rocks Capital


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2014 and the fourth quarter proved to be positive for listed private equity and its investors. Our outlook for private equity is positive as we enter 2015 as the markets continue to show an appetite for the underlying holdings of publicly-traded private equity names.

We see a number of potential IPOs (Initial Public Offerings) on the horizon in both Europe and in the USA. Debt remains cheap and available on a global basis. At this juncture we do not see any financial crisis on the horizon.

As we look forward, potential negatives include a competitive environment for deals and new capital deployment, global tensions related to Russia, instability caused by falling energy prices, and a market that may become overpriced in terms of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) multiples.

Within the global private equity investment class, we have observed companies providing better disclosure, increased global analyst coverage, and significant interest from new clients. We believe that all of these items, when looked at collectively, continue to reinforce the desire for a liquid private equity product and suggest to us we are likely to see more private equity names going public in the future.


We see a steady stream of new private investment opportunities as sidelined capital continues to be deployed. Additionally, we expect to see a broader reach into the developing markets and into Europe where assets prices have become less expensive than in the USA. 

We are alert to potential and significant interest in the energy space given recent commodity price action and we expect to see an ongoing stream of asset realizations (either strategic or as IPOs) as 2015 unfolds. All in all, we believe that 2015 is setting up to be a decent year for private equity and its investors.

As always, we appreciate your continued support and interest in Red Rocks and the Listed Private Equity strategy.

Mark Sunderhuse
Co-Portfolio Manager


February 20, 2015 – GOLDEN, CO – (BUSINESS WIRE) -- Red Rocks Capital, an asset management firm specializing in listed private equity securities, announced today that, through the period ending September 30, 2014, the performance of its Global Listed Private Equity (GLPE) continues to provide long-term performance comparable with the Cambridge Associates Global Buyout & Growth Equity Index®.

The Cambridge Associates Global Buyout & Growth Equity Index® is a widely followed private equity benchmark and is an end-to-end calculation based on data compiled from 1,753 global (U.S. & ex U.S.) buyout and growth equity funds including fully liquidated partnerships, formed between 1986 and 2014. 


Sources: Bloomberg, Cambridge Associates, Red Rocks Capital
Past Performance is no guarantee of future results. One cannot invest directly in an index.

Annualized returns as of 9/30/2014

5 Years

10 Years

15 Years

Cambridge Global & Growth Equity Index® 15.47% 13.89% 11.96%
Global Listed Private Equity (GLPE) Index 12.85% 8.22% 11.04%
S&P 500 Index 15.69% 8.10% 4.87%

Sources: Bloomberg, Cambridge Associates, Red Rocks Capital
Past Performance is no guarantee of future results. One cannot invest directly in an index.


 “Traditional illiquid private equity limited partnerships have historically outperformed the S&P 500 and other equity indices over longer investment cycles,” said Mike Trihy, GLPE Index Manager at Red Rocks Capital.  “Constituents in the GLPE trade daily on major exchanges throughout the world so the index may experience higher volatility than traditional private equity during shorter investment horizons.  However, over longer investment perspectives, the GLPE provides performance comparable to traditional private equity while significantly outperforming the S&P 500.” 


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A Longer Term Look at Listed Private Equity

As part of a larger study on the listed private equity (LPE) universe, our analyst team looked at historical and back-tested returns and other characteristics of the Global Listed Private Equity (GLPE) Index versus several other major equity indices.  
We discovered some interesting data:

  1. For the years 1997 through 2014, we found that the GLPE* significantly outperformed S&P 500, MSCI ACWI, and Russell 2000.  Most of all, we were surprised by the 400 bps outperformance vs. Russell 2000, an index that represents companies whose operations may most closely resemble the underlying companies in the private equity constituents of the GLPE.
  2. Although annualized standard deviation was higher for GLPE (23.17%) than other comparable indices (15.64% for the S&P 500; 16.23% for the MSCI ACWI; and 20.46% for the Russell 2000), the Sharpe Ratio for the GLPE, at 0.53, was higher than the other indices (0.50 for S&P 500; 0.42 for MSCI ACWI; and 0.41 for Russell 2000), indicating a more favorable return vs. risk tradeoff.
  3. Up capture vs. MSCI ACWI was 1.44, indicating a favorable response to up markets. Down capture vs. MSCI ACWI was 1.12,  which is a reasonable down market response, given the volatility of the listed private equity asset class.
  4. GLPE Correlations were 0.811 vs. S&P 500; 0.888 vs. MSCI ACWI; and 0.811 vs. Russell 2000, indicating that there is little diversification benefit from private equity.  These numbers are consistent with a recent academic study that approximated equity correlation of traditional unlisted private equity at 75%, indicating little diversification benefit for private equity.**

12/31/1996 - 12/31/2014
Past Performance and the resultof hypothetical back testing are not indicative of future results
*See important disclosures regarding GLPE and back-tested returns at the end of this document.
**Financial Analysts Journal, Volume 70 Number 3, May/June 2014: “Asset Allocation: Risk Models for Alternative Investments” by Niels Pedersen, Sébastien Page, CFA, and Fei He, CFA



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Global private equity AUM exceeds $3.5 trillion. Preqin - Jan 2014

Largest U.S. completed private equity transaction of 2014 was $5.4 billion sale of Gates Rubber by Canadian PE firm Onex to Blackstone.  Onex realized approximately 27% gross IRR and 2.2X return on invested capital.  Reuters - Apr 2014

Europe - Private-equity-backed IPOs rose to highest level of all time for H1 2014.  UK Telegraph - Jun 2014

U.S. venture funding activity hit highest point since 2001, dominated by Uber and AirBnB, both of which raised capital at $10 billion+ valuations.  CNET - Jul 2014

Tax inversion deals became one of the hottest trends in M&A, drawing significant opposition from lawmakers. WSJ - Aug 2014

CalPERS dumps $4 billion in hedge funds, citing cost and complexity.  Reuters - Sep 2014

Alibaba becomes biggest IPO in history, raising $25 billion; Silverlake’s $300 million investment in 2011 in Alibaba is now worth is worth nearly $3.9 billion.  WSJ - Sep 2014

Partners Group, Pantheon announced more details on how they could provide private equity access in defined contribution/401(k) plans.  WSJ - Oct 2014

One year after Michael Dell and Silverlake took Dell private in a $24.9 billion buyout, Bloomberg reports that Dell and Silverlake have a 90% paper profit on the deal.  Bloomberg - Nov 2014

The US Dollar hit a 5 year high in November and was up 8% in 2014.  WSJ - Nov 2014

Oil prices dropped to over 40% to 5 year lows in December, threatening deferment or cancellation of billions in exploration projects worldwide.  NY Times - Dec 2014

US - Private equity firms’ rush to exit the companies they own via IPO contributed to busiest year since 2007, and record high proceeds and new listings in the U.S. in 2014.  PR Newswire - PriceWaterhouseCoopers - Dec 2014

The largest announced deal of 2014 was the $8.7 billion LBO of Petsmart by BC Partners.  Fortune - Dec 2014

And on the lighter side, David Rubenstein, Carlyle Group’s co-chief executive, whose firm generated hefty profits through Beats Electronics with Dr. Dre, created a rap inspired corporate holiday video -  Enjoy!  Carlyle Group

To our clients and partners, we wish you a prosperous and peaceful 2015!