08.11.2016

State Street’s GX Private Equity Index Shows Venture Capital Sees Returns Dip into the Negative in Q1 2016

State Street –  LONDON – State Street Corporation (NYSE:STT) today announced the results of its GX Private Equity IndexSM, a benchmark for comparative analysis of private equity performance, which includes a comprehensive data set dating back to 1980. In the first quarter of 2016, the index saw an overall return of 0.65 percent.

“During the first quarter of 2016 the return on US-focused funds remained flat from the fourth quarter of 2015,” said Will Kinlaw, senior managing director and global head of State Street Associates, a division of State Street Global Exchange. “Due to the lag in valuation reporting, this release does not yet include the United Kingdom’s decision to leave the European Union in late June 2016, but ahead of Brexit, European-focused private equity funds posted another strong quarter.”

The Index is based on directly sourced limited partnership data and represents more than $2 trillion in private equity investments, with more than 2,500 unique private equity partnerships, as of March 31, 2016.

Additional First Quarter Highlights Include:

The return of US-focused funds remained unchanged from the previous quarter.  Among all three main strategies, Venture Capital posted a loss of -2.06%, while Buyout and Private Debt funds recorded 0.67% and 0.32% gains, respectively.  For the one-year return, US private equity funds recorded a 2.8% gain.
The rolling one-year return of Venture Capital presented a downward trend, dropping to 5.86% in Q1 2016 from 29.4% at its peak in Q2 2014.
Although European-focused private equity funds booked another strong quarter (3.51% in USD denominated return) this is due to a tailwind from the exchange rate. The EUR-denominated return was -1.26%, with the EUR appreciating about 4.9% in Q1 2016, then dropping 2.5% in Q2.
In terms of cash flow ratios, European-focused funds have the most exit activity over the past three years, with a Distribution to Commitment (DCC) ratio of 1.18. Meanwhile, funds in Emerging markets and Asia-Pacific region have more new active deals than the other regions, with a Paid-In Capital to Commitment (PICC) ratio of 1.10.

“Public market uncertainty and larger macro-economic concerns likely caused the decline in returns for Venture Capital during the quarter,” said Anthony Catino, managing director, Alternative Investment Solutions for State Street. “Despite this decline, we continue to see investors, specifically Limited Partners and Asset Owners, who understand these returns have historically been cyclical, using Venture Capital funds as a diversification mechanism and increasing their exposure to the asset class.”

For additional insights, or to learn more about the GX Private Equity Index please visit http://www.ssgx.com/peindex.

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