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Cambridge: Private equity performance up 4.3% in Q2

Cambridge’s private equity index shows an increase in private equity returns for the first time since the end of 2007. The report is similar to earlier findings by State Street.

Private equity returned 4.3 percent in the second quarter, the first quarter of positive returns for private equity since the end of 2007, according to Cambridge Associates.

The Cambridge numbers were released earlier this week, shortly after State Street released a report showing that average private equity fund valuations were written up by 5.48 percent in the second quarter of 2009.

“While the difficult economy continued to challenge investors in all asset classes, including alternative assets, the rebound of the public markets helped returns for both the private equity and the venture capital indices,” Andrea Auerbach, managing director at Cambridge, said in a statement.

“Between the two, the private equity index benefited more because its underlying companies are more mature than those in the venture capital index, and typically more closely resemble – and in some cases, are – public companies,” she said. The venture index showed positive returns of .2 percent in the second quarter.

According to Cambridge, the private equity index’s gains were largely the result of improved valuations for companies in several industries hardest hit by the recession, including retail, financial services and energy.

“The three largest industries by size – consumer, energy and healthcare – together represented more than half of the private equity benchmark’s value; each sector rose between 3.4 percent and 4.4 percent, with healthcare performing best,” Cambridge said in the report.

General partners made about $1.1 billion more capital calls in the second quarter than the first quarter, for a total of about $7.4 billion. Meanwhile, distributions stayed about the same as the first quarter, Cambridge found.

“Funds launched in 2000 distributed the most money to investors during the quarter – roughly 30 percent of total distributions. Investors in the 2004-2008 vintage funds paid in the most capital, contributing more than 90 percent of the capital called by private equity fund mangers,” Cambridge said.

Cambridge’s private equity index includes 787 funds. The benchmark is capital-weighted so funds representing large amounts of the index’s value are mostly responsible for its performance.