State Street: PE Fund Distributions Outpacing Capital Draws

Jul 23 2015 | 5:49pm ET

New data from State Street suggests private equity fund distributions have outpaced capital draws over the past 33 months.

State Street’s GX Private Equity Index, a benchmark for comparative analysis of private equity performance, saw an overall return of 2% in the first quarter of 2015, according to the company. The index, which includes a comprehensive data set dating back nearly three decades, is based on directly sourced limited partnership data and represents more than $2.2 trillion of private equity investments, with more than 2,400 unique private equity partnerships.

“We have observed significant amounts of capital being returned to investors with fund distributions outpacing capital draws over the last 33 months, which is unprecedented in the past 25 years,” said Will Kinlaw, head of State Street Associates. “With so much capital coming back to them, limited partners face difficult decisions on where they put this money to work and whether to reinvest in private equity.”

First quarter highlights include:

  • Venture capital was the best performing private equity strategy with a return of 3.87%. Investors in these funds benefited from a 3.20% increase in the valuation of venture-backed companies during the quarter, as well as realized gains and deal exits that generated more than $1 billion in capital distributions.
  • During the first quarter, buyout and private debt strategies generated returns of 1.66% and 1.34% respectively.
  • Due primarily to Euro depreciation during the first quarter of 2015, Europe-focused private equity funds dropped 2.88%, which is the third consecutive quarter since the third quarter of 2014 that they posted negative quarterly returns.

“Venture capital performance has picked up significantly, with an annualized return of 17.13% percent over the past three year period as compared to 12.62% over a prior three year period. This uptick in performance is driven by rising valuations in venture-backed software and technology firms,” concluded Kinlaw.

State Street Corporation is one of the world's largest providers of institutional financial services, including investment servicing, investment management and investment research and trading. The company has $28.5 trillion in assets under custody and administration and $2.4 trillion in assets (including $28 billion in the company’s SPDR Gold ETF) under management as of March 31, 2015.

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