Red Rocks Capital

JULY 2015 PRIVATE EQUITY PERSPECTIVES

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PRIVATE EQUITY GROWTH CAPITAL COUNCIL (PEGCC): “PRIVATE EQUITY SUPERIOR SOURCE OF RETURNS FOR LONG-TERM INVESTORS”

The latest Performance Update Report from the Private Equity Growth Capital Council (PEGCC) shows that private equity continues to outperform traditional equity indices over longer term investment horizons. 

According to the report, private equity funds invested by large U.S. pensions outperformed the public markets by 5.2 percentage points annually over a 10-year horizon with the median private equity benchmark providing returns (excluding venture capital) of 12.8 percent, net of fees, over a 10-year horizon.

The results are based on private equity fund returns as of December 31, 2014.

Source: http://www.pegcc.org/newsroom/press-releases/report-shows-private-equity-best-for-long-term-investment/

JUNE 2015 PRIVATE EQUITY PERSPECTIVES

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THE RETURN OF VOLATILITY

When I last penned a Quarterly Commentary in Q3 2014, the capital markets and private equity world were relatively steady with little drama being reflected in prices. Since that time things have gotten more interesting: the US Dollar which had been strengthening in early 2014 accelerated and got even stronger versus most major currencies; global interest rates continued their downward trend with some countries now posting negative returns (government bonds in Denmark, Sweden, Switzerland, France, and Germany all have negative effective rates*); the US equity markets continued their upward price trend; most global equity markets improved, if only slightly; commodity prices softened; and energy (in particular crude oil) prices collapsed. While several of these are correlated, one of the common observations has been volatility returning with a capital “V.”

Private equity has been affected in a number of ways: while EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) multiples continue to rise and earnings continue to improve, the volatility in the capital markets had an adverse impact on the pricing of Listed Private Equity (LPE) vehicles. The pricing of LPE securities has become more erratic, sometimes abnormal. One only needs to look at the leading benchmark index, the Global Listed Private Equity Index (the only 1940 Act compliant Index with the largest AUM (Assets Under Management) in a tracking exchange traded fund), over the past few months to appreciate this volatility; 9.28% versus 11.76% for the periods March 31, 2014 – September 30, 2014 and September 30, 2014 - March 31, 2015, respectively, or a 27% increase in volatility for the two measurement periods*. If a 27% increase in volatility is unnerving, one need only look at the broader equity markets. The Morgan Stanley All World Index was significantly more volatile: 7.12% versus 11.31% for the periods March 31, 2014 – September 30, 2014 and September 30, 2014 - March 31, 2015, respectively, or a 59% increase in volatility for the two measurement periods. 

We believe that is meaningful.  Yet some things didn’t change much from a private equity perspective: exit opportunities of existing portfolio companies, either through an outright or partial sale, are as strong as ever, organic revenue growth in existing portfolio companies continues, albeit at a tepid pace and investors (institutional and retail) continue to pour capital into the asset class.  The result: private equity managers are posting very good returns from past investments yet are challenged to find new companies in which to invest at (what they consider to be) reasonable valuations. No one ever said that the job of a private equity manager was easy.

OUTLOOK

My outlook hasn’t changed much since my last Quarterly Commentary: tepid global GDP (Gross Domestic Product) coupled with historically low interest rates and increasingly volatile capital markets makes for a challenging world in which to invest. Fortunately private equity managers are fairly adept. They adapt better than most. We believe that will translate into strong, long-term returns.  Valuation multiples continue to look full in most industry sectors (energy and related services being the possible exception). That has not stopped private equity firms from producing positive results. Yes, growth continues to be hard to come by. However, private equity has a knack for growing company revenues even in the face of tepid GDP growth.  The above is why more investors are committing ever increasing amounts of capital to the asset class.
 

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

Adam Goldman
Co‐Portfolio Manager

* Bloomberg, March 15, 2015

MAY 2015 PRIVATE EQUITY PERSPECTIVES

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RED ROCKS CAPITAL TO JOIN ALPS

ALPS, a DST Company that provides products and services to the financial services industry, announced on April 7, 2015 that it has agreed to acquire asset manager Red Rocks Capital LLC, a leader in listed private equity and other private asset investments.

Red Rocks, founded in 2003 by Adam Goldman and Mark Sunderhuse, is the first and largest domestic money manager to package listed private equity products in a '40-Act structure.

The closing of the transaction is expected to occur in the second half of 2015.

"Acquiring a best-in-class manager like Red Rocks Capital gives us a distinct edge in the alternative investments marketplace," said Ned Burke, CEO of ALPS Holdings, Inc. "This transaction represents an important step in our ongoing asset management strategy."

"Our goal has always been to provide investors and financial professionals with access to one of the world's most desired asset classes," said Goldman. "As part of ALPS and the DST Enterprise, we'll be in far greater position to expand the breadth and reach of Red Rocks' offerings."

Golden, Colorado-based Red Rocks has been sub-adviser to a 1940 Act listed private equity fund from its inception in 2007. The offering is now one of the largest actively-managed mutual funds in the U.S. that focuses on providing access to listed private equity investments.

In addition to its investment products, Red Rocks also created and maintains the Red Rocks Global Listed Private Equity (GLPE) Index, a benchmark for private equity firms that are publicly traded on nationally-recognized exchanges worldwide.

Tom Carter, President of ALPS Advisors, Inc. said, "Everything in our experience tells us that ALPS and Red Rocks are going to do great things together for the investment community. I'm confident this acquisition will benefit all parties involved over the long term."

http://www.prnewswire.com/news-releases/alps-agrees-to-acquire-listed-private-equity-specialist-red-rocks-capital-llc-300062190.html

APRIL 2015 PRIVATE EQUITY PERSPECTIVES

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HIGHLIGHTS FROM THE 2015 BERLIN SUPERRETURN PRIVATE EQUITY CONFERENCE

Each February, 1,500+ leading venture capital and private equity managers and limited partners convene in Berlin for the SuperReturn International Global Private Equity Conference.

Several highlights from the recent conference included:

Despite Uncertainty, Private Equity Remains Bullish on Europe
Executives from private equity firms such as Carlyle, Blackstone and Terra Firma suggested that European companies were now more open to selling distressed assets, and that sales related to bank bailouts by local governments could provide one of the best opportunities, suggesting that European deals in the short-term would probably be valued at 500 million euros to 2 billion euros.

Secondary Discounts Have Narrowed 
According to a UBS survey, the demand for secondary market for private equity partnerships has continued to be strong.  The discount to NAV was 4.9% in the 4th quarter of 2014, down significantly from the 8.9% discount in 2nd quarter of 2013, and the 18.7% discount in the 4th quarter of 2011.  UBS estimated the secondary market volume for 2014 was $37.5 billion.

Ares Upbeat on Private Debt Opportunities
Mike Arougheti, the co-founder of Ares Management, is upbeat on opportunities in private debt in Europe.  Despite the signs of froth in the market, he believes that prospects for private debt in Europe are good and pointed out that listed vehicles could be the market’s next “boom.”  He added that the market could look to more permanent sources of capital, with firms raising long-term listed credit vehicles, such as business development companies, which are common in the U.S. but not currently allowed in Europe.

Private Equity Manager Performance Persistence
Picking a PE manager based on past performance does not guarantee future results, and past academic studies have provided mixed evidence for performance persistence for PE managers.  Oliver Gottschalg, Head of Research at PERACS and Professor at HEC, suggested that after correcting for the methodological IRR bias and expressing performance net of public market returns, there is statistically significant evidence of some performance persistence for private equity managers.

Private Equity Prepares for the Millennial Generation
James Coulter, co-founder of TPG Capital, suggested that in the next 10 years, the PE industry would be subject to unprecedented changes due to the "millennial generation", including continued growth overall but with fewer funds; changes in fees to amounts drawn and not on commitments; the length of fund terms will change to both beyond the typical 10 years as well as shorter durations; and growth in co-investments by investors will continue.

http://www.icbi-superreturn.com/

Red Rocks Capital Global Listed Private Equity (GLPE) Advances in Q2 2015

GLPE INDEX UP 11.20% YTD AMID STRONG M&A AND IPO EXIT ENVIRONMENT

Golden, CO - July 15, 2015 - (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 the second quarter of 2015 up 5.59%, compared to 0.47% for the MSCI World Index.  For the first two quarters of 2015, the GLPE index is up 11.20%, compared to 2.97% for the MSCI World Index, as strong performance from near-record exit activities from index constituents in Europe and North America overcame both continued Euro and Greece currency concerns as well as negative currency impacts of the a strong US Dollar.

“Listed Private Equity firms had a very strong quarter and continue to outpace global indices year-to-date,” said Mike Trihy, GLPE Index Manager at Red Rocks Capital.  “During the first half of 2015, worldwide M&A was at its highest level since 2007*, and many private equity firms capitalized on robust M&A and IPO markets with profitable exits of their portfolio companies.”

The largest contributor to index performance during the second quarter was South African listed private equity firm Brait (BAT SJ EQUITY), finishing the quarter up over 47% after announcing NAV growth of 141.4% for its fiscal year.  Brait has completed several additional major acquisitions including the $1.2 billion buyout of U.K. retailer New Look and the purchase of a majority stake in health club chain Virgin Active.  Other significant contributors to GLPE performance for the quarter included: 3i Group PLC (III LN EQUITY) and Fosun International (656 HK EQUITY). 

 

Bloomberg data from 6/30/2010 - 6/30/2015
*Past performance does not guarantee future results

*Thomsen Reuters M&A Financial Advisory Review, First Half 2015

 

RED ROCKS CAPITAL GLOBAL LISTED PRIVATE EQUITY INDEX CONTINUES TO PROVIDE LONG-TERM PERFORMANCE COMPARABLE WITH TRADITIONAL PE BENCHMARK

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. 

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.

 

RED ROCKS CAPITAL GLOBAL LISTED PRIVATE EQUITY (GLPE) ADVANCES IN Q1 2015

GLPE INDEX UP 5.32% IN Q1 DESPITE CONTINUED CURRENCY HEADWINDS

Golden, CO - April 15, 2015 - (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 the first quarter of 2015 up 5.32%, compared to 2.47% for the MSCI World Index.  Strong performance from many of the larger index constituents around the world overcame the negative currency impacts of the continued strengthening of the US Dollar.

“Listed Private Equity firms had a strong quarter, outperforming global indices despite a negative impact of almost 4% from the stronger dollar,” said Mike Trihy, GLPE Index Manager at Red Rocks Capital.  “The dollar volume of U.S. buyout deals in Q1 was the highest level since Q3 2007** and PE firms benefitted from increased portfolio valuations around the globe, with positive developments for portfolio companies in Europe, North America and Asia.”

 

Bloomberg data from 3/31/2010 - 3/31/2015
*Past performance does not guarantee future results
**Source: Preqin, 4/1/2015