The Case for Non-U.S. Funds Grows Weaker
Investors looking to wring returns out of foreign investments would right now do better sticking with stocks than investing through venture capital or private equity funds, suggests new data out of Cambridge Associates.
Its index of PE and venture funds invested primarily in developed markets outside the U.S. “returned” 7.5 percent in the first quarter of this year, compared with a comparable public equity index that shows returns of 10.9 percent for the same period.
A second Cambridge Associates index, focused solely on emerging markets, returned 6.4 percent compared with a corresponding public market benchmark that boasted a 14.1 percent performance in the first quarter.
If there’s a silver lining, it’s wrapped around one-year returns, ending March 31. Returns for funds focused on developing countries returned 4.3 percent, compared with their corresponding public equities index, which saw a return of -5.8 percent. Funds zeroing in on emerging markets performed even better over the one-year period, eking out a 1.8 percent return, compared to the -8.5 percent performance of its corresponding public market benchmark.
In fact, according to Cambridge’s data over the last 3-, 5-, 10, and 15-year periods, venture and private equity funds focused on both developing and emerging markets have mostly outperformed their public market benchmarks. Specifically, Cambridge’s developed markets index outperformed the corresponding pubic market index –MSCI EAFE — in every period except for the first quarter. And Cambridge’s emerging markets index outperformed its public equities counterpart — the MSCI Emerging Markets Index — in four of the seven periods listed.
Still, the performance gap has begun to shrink somewhat dramatically in recent years, as you can see below.
Global ex U.S. Developed and Emerging Markets Private Equity and Venture
Capital Indices
Returns (%) in U.S. Dollars
Periods ending March 31, 2012
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For the periods ending 1 3 5 10 15 20
March 31, 2012 Qtr. Year Years Years Years Years Years
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ex U.S. Developed Markets PE and VC 7.5 4.3 17.2 4.1 14.8 13.9 13.8
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Emerging Markets
PE and VC 6.4 1.8 21.6 10.8 12.0 8.5 8.4
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Other Indices
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MSCI EAFE 10.9 -5.8 17.1 -3.5 5.7 4.2 5.8
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MSCI Emerging Markets 14.1 -8.5 25.4 5.0 14.5 7.5 8.2
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