PE and VC Returns Were Positive in Q3

U.S. private equity and venture capital funds posted positive returns in the third quarter, but both asset classes lagged public market returns.

Those are the latest findings from Cambridge Associates, which reported today that its U.S. Private Equity Index returned 3.6% in the third quarter, compared to -0.1% in the prior quarter.  Cambridge’s U.S. Venture Capital Index, meanwhile, gained 0.6% in Q3, the same as in the prior quarter.

Private equity funds launched in 2007 comprised the largest group in the PE index, representing more than one-fourth of its value. That vintage year also had the highest return of the top five for the third quarter: 4.5%. Most of the gains in the 2007 funds were due to increased valuations for energy companies, though write-ups in healthcare and manufacturing also contributed. The second largest group of funds in the PE index was the 2006 vintage, which represented 23.4% of the index’s value and earned 3.8% for the period.

The venture capital benchmark, by contrast, has become more diversified by vintage year, but remains tightly concentrated by sector. The three largest sectors — IT, healthcare, and software — comprised almost three-fourths of the index’s total value. Of those, both healthcare and software investments posted positive returns, while IT dipped a bit.

Overall, it’s a climate where firms are returning more to investors than they’re calling down. Fund managers in the private equity index called $16.7 billion from investors in the third quarter and distributed $21.6 billion. Venture capital fund managers called $3.2 billion in the third quarter and distributed $5.9 billion, the highest level of quarterly distributions for the VC benchmark since the first quarter of 2001.

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