Returns for US-based private equity and venture capital funds were flat for the quarter ended June 30, 2012, while the two sectors delivered returns of around 5.5 per cent and 5.4 per cent respectively for the first half of the year, indices show.

The Cambridge Associates US Private Equity Index returned negative 0.1 per cent for Q2, while the firm’s Venture Capital Index ticked up 0.6 per cent. For the first half of the year overall, returns were better, but trailed public market indices such as the S&P 500 (9.5 per cent return).

Over long periods of time, however, the indices have outperformed the public markets, as measured by the S&P 500, the Russell 2000 Composite (a small-companies measure), and the Nasdaq Composite (based on capital changes only). The VC and PE returns beat these three measures for 15, 20 and 25 year measures, according to Cambridge Associates’ indices.

Vintage fund performance

Funds raised in 2008 had the highest return in Q2 among the private equity index’s largest vintage years. The two largest vintage years by weight in the private equity index are 2006 and 2007, accounting for 47 per cent of its value. The Q2 best performer, 2008, delivered 1.6 per cent and is in the top five vintage years by weight in the index.

Meanwhile, 2004 funds delivered the worst Q2 performance, driven by decreased valuations in IT  companies, which also dragged down the 2008 funds, Cambridge Associates said. The newer 2008 funds were boosted however by valuation gains in hardware, healthcare, and manufacturing companies.

Among VC vintage years, funds raised in 2000 led the way, generating a 3.8 per cent return for the quarter. This bolstered the VC index as a whole, as these funds made up 12.5 per cent of its value at the end of the quarter. In other vintages, four of the six largest made negative returns in Q2.

Capital calls down for PE

In Q2, fund managers in the private equity index asked for the lowest levels of contributions from their limited partners for any period in the last three years: $11.3 billion, down sharply by 17 per cent from the period before. Distributions shot up 73 per cent from the first quarter, at $28.7 billion, the second largest quarterly distribution seen over the last five years, Cambridge Associates said.

“This was the fifth time in the last seven quarters that fund managers in the PE index returned more capital to their limited partners than they collected through contributions. And the scale of the difference was, historically, striking, in that it was the first quarter in the past 20 years that fund managers in the index distributed more than 2.5 times the amount that they called," said Keirsten Lawton, senior consultant, private equity research at Cambridge Associates.

In the VC space, capital calls and distributions were both up, at $3.8 billion and $5.6 billion respectively. This represents an increase of 24.3 per cent for capital calls and 21.1 per cent for distributions.