The State Street Global Exchange Private Equity Index (GXPEI) ended 2016 with a moderate quarterly performance, posting an overall gain of 2.58 percent in the fourth quarter, a slight decrease from the 3.8 percent return in Q3 2016.
Buyout funds posted a strong annual return of 12.52 percent but Venture Capital continued to face headwinds.
Based on directly sourced limited partnership data, the PEI represents more than $2.5 trillion in private equity investments and over 2,600 unique private equity partnerships, as of December 31, 2016.
Public markets continue to show signs of strength with valuations at healthy levels, said Will Kinlaw, senior managing director and global head of State Street Associates, a division of State Street Global Exchange. In private markets, we saw heightened exit activity in recent years as managers took the opportunity to exit their investments. Recently, however, capital calls have slowed. The evidence suggests that general partners are taking a careful approach in identifying opportunities that provide superior returns at decent valuations.
Fourth Quarter Highlights Include:
- Private Equity overall posted a one-year return of 10.36% in 2016, an increase from 6.55% in 2015
- Across the three main strategies, Buyout and Private Debt funds gained 3.07% (down from 3.86% in Q3) and 3.04% in Q4 (down from 3.59% in Q3), respectively
- Venture Capital posted the smallest quarterly gain of 0.47% in Q4 (down from 3.72% in Q3), continuing its downward trend despite an uptick in Q3 2016
- Buyout recorded the highest one-year return of 12.52% as of Q4 2016, followed by Private Debt with a 10.39% gain and Venture Capital with only 2.84%
- Despite EUR depreciation of about 6% in Q4, European-focused private equity funds recorded a gain of 2.16% in USD-denominated quarterly returns, down from 4.08% in the previous quarter. Euro Funds posted an 11.03% annual gain at the end of 2016, up from 7.10% in 2015.
- Fund raising activity in 2016 was in line with recent years. However, monthly contribution ratio (PICC) remained very low throughout the year despite a small rebound in December. The capital deployment rate of newly closed funds continued to slow down in 2016, lower than the historical pooled level.
We have seen solid fund raising activity across all private equity sub-classes recently, said Anthony Catino, managing director, Alternative Investment Solutions for State Street. With large distributions in the past few years driving dry powder to historical levels, investors are eager to put their money back to work and maintain the level of private equity in their overall asset allocation.
