Red Rocks Capital

FEBRUARY 2015 PRIVATE EQUITY PERSPECTIVES

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

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

 

RED ROCKS CAPITAL GLOBAL LISTED PRIVATE EQUITY (GLPE) INDEX LAGS KEY INDICES FOR 2014

GLPE INDEX CONTINUES TO OUTPERFORM KEY GLOBAL EQUITY INDEX FOR THREE YEAR AND FIVE YEAR PERIODS - STRONG DOLLAR NEGATIVELY IMPACTS EUROPEAN CONSTITUENTS IN 2014

Download GLPE Factsheet

January 15, 2015

Golden, CO -- (PR Newswire) -- Red Rocks Capital, an asset management firm specializing in listed private equity securities, announced today that its Global Listed Private Equity (GLPE) finished 2014 down slightly from year end 2013.  Although the GLPE Index was up 2.06% during Q4, the index finished the year down 2.19%, while the MSCI World index increased 5.95%.

As the GLPE Index is US dollar denominated, currency movements played a major role in index performance in 2014 as the weakening Euro and British Pound provided a significant headwind.  Overall, currency effects provided a -5.58% contribution to index returns for the year.  Concerns about the European economy weighed on the index as well, leading many European names to trade at increased discounts to net asset value (NAV).“We’ve seen a disconnect between public market prices and underlying private portfolio values for many listed private equity companies in 2014,” said Mike Trihy, GLPE Index Manager at Red Rocks Capital. “Valuations of private holdings in Europe have generally grown steadily throughout the year, while market prices have remained stagnant or in some cases dropped. We believe investor concern about the macro backdrop in the region has led to this gap and not concerns regarding private portfolio company performance. With secondary market discounts for unlisted private equity funds in the low single digits, we could see uplift in listed private equity names from their current deep discounts to balance sheet valuations.”

JANUARY 2015 PRIVATE EQUITY PERSPECTIVES

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

A FEW (OF THE MANY) PRIVATE EQUITY HIGHLIGHTS FROM 2014

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!