Red Rocks Capital

December 2014 Private Equity Perspectives

(To download a pdf file of this document, click here.)

LISTED PRIVATE EQUITY VS. TRADITIONAL PRIVATE EQUITY PARTNERSHIPS

According to information from Cambridge Associates for Q2 2014, Global Listed Private Equity (GLPE) continues to provide long-term performance comparable with traditional illiquid private equity partnerships, as measured by the Cambridge Associates Global Buyout & Growth Equity Index®.

The Cambridge Associates Global Buyout & Growth Equity Index®, a widely followed global private equity benchmark, is an end-to-end calculation based on data compiled from 1,728 global (U.S. & ex U.S.) buyout and growth equity funds including fully liquidated partnerships, formed between 1986 and 2014.  The GLPE Index is designed to track the performance of private equity firms which are publicly traded on any recognized exchange worldwide. Index constituents are selected from a universe of over 300 vehicles with aggregate market capitalization of over $300 billion that invest in, lend capital to, or provide services to privately-held businesses and provide a meaningful subset of the $3.5 trillion AUM global private equity market.

Listed private equity companies pursue a business model which is similar to traditional private equity partnerships – they acquire companies for reasonable prices, enhance them operationally and financially, and sell them after 5-7 years or more.  The distinct difference in listed private equity vs. traditional private equity is that listed vehicles are traded on exchanges and address many of the challenges of acquiring and holding an illiquid private partnership interest.

As of 6/30/2014.  Cambridge Associates performance data is compiled from information on private partnerships; reporting lag is approximately 4 months.
Sources: Bloomberg, Cambridge Associates, Red Rocks Capital.  Past performance is no guarantee of future results.  One cannot invest directly in an index.  See important considerations for comparing private market and public market performance at the end of this document.

NOVEMBER 2014 PRIVATE EQUITY PERSPECTIVES

(To download a pdf file of this document, click here.)

GLOBAL BUYOUT & GROWTH EQUITY FUND INDEX PERFORMANCE – PUBLIC MARKET EQUIVALENT COMPARISONS

Private Equity performance measurements typically use internal rate of return (IRR), so comparing private equity to traditional asset classes that use time-weighted returns may not be an “apples to apples” comparison, as the timing of cash flows in an IRR calculation can alter performance. Public Market Equivalent (PME) is a method to provide a more comparable measure for time-weighted asset classes and private equity.   PME simulates cash flows and investment timing similar to a private equity fund, enabling a more comparable analysis.

Below is a comparison of how Global Private Equity has performed versus S&P 500 and MSCI EAFE Public Market Equivalent (PME) calculations.  Although equities have outperformed during the bull market of the past 5+ years, private equity has outperformed over the longer term of 10-, 15-, 20- and 25-year periods.

 

As of June 30, 2014

Sources: Cambridge Associates LLC, Frank Russell Company, MSCI Inc., Standard & Poor's and Thomson Reuters Datastream

*The index is an end-to-end calculation based on data compiled from 1,728 global (U.S. & ex U.S.) buyout and growth equity funds including fully liquidated partnerships, formed between 1986 and 2014.
*Pooled end-to-end return, net of fees, expenses, and carried interest.
**Cambridge Associates Modified Public Market Equivalent (mPME) replicates private investment performance under public market conditions. The public index’s shares are purchased and sold according to the private fund cash flow schedule, with distributions calculated in the same proportion as the private fund, and mPME NAV is a function of mPME cash flows and public index returns.
MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada.