REPORT HIGHLIGHTS - WOLFMAN.ONE® · 2020-03-30 · Report E 4 2013 Globa PE VC PitchBook G Page 8 - An analysis of CalPERS’ alternative investments since 2000 using PME benchmarks

Report& FUND PERFORMANCE

4Q 2013 Global PE & VC PitchBook

BENCHMARKING

Page 8 - An analysis of CalPERS’ alternative investments since 2000 using PME benchmarksPage 9 - Debt funds stand out as top performers since 2000Page 15 & 18 - PE fund cash �ows continue strong run in 1Q 2013 while VC sees a slowdown

REPORT HIGHLIGHTS:

Sponsored by:

4Q 2013 PE & VC Global Benchmarking & Fund Performance Report

3www.pitchbook.com | [email protected]

45-8

910-1213-15

13

14

15

16-1816

17

18

19

IntroductionPitchBook’s PME Index & BenchmarksIRR by Asset ClassQuartiles and BenchmarksPrivate Equity Global PE IRRs

Global PE Fund Return Multiples

PE Fund Cash Flows Venture Capital Global VC IRRs

Global VC Fund Return Multiples

VC Fund Cash Flows

Methodology

Table of Contents

COPYRIGHT © 2013 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means – graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems – without the express written permission of PitchBook Data, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment.

Credits & ContactPitchBook Data, Inc.John Gabbert - Founder, CEOAdley Bowden - Research Director

ContentJames Gelfer - EditorAllen Wagner - Senior Writer

DesignAllen Wagner - Senior WriterJames Gelfer - Editor

Data Analysis & PME IndexMichelle Yonce - Senior Research AssociatePeter Fogel - Senior Data AnalystSam Henly - Academic in Residence

EditingYnna Carino - Editor

Contact PitchBookwww.pitchbook.comResearch - [email protected] - [email protected] - [email protected] - [email protected]

RR Donnelley is the world’s largest integrated communications company. The company works collaboratively with more than 60,000 customers worldwide to develop custom communications solutions that reduce costs, drive top-line growth, enhance ROI and increase compliance. Drawing on a range of proprietary and commercially available digital and conventional technologies deployed across four

continents, the company employs a suite of leading Internet based capabilities and other resources to provide pre-media, printing, logistics and business process outsourcing services to clients in virtually every private and public sector. Our Corporate Responsibility Report is available at www.rrdonnelley.com.

Our Venue® secure online workspace provides a powerful feature-set and an intuitive design that allows you to easily organize, manage, share and track all of your sensitive information. Venue® data rooms provide complete control, allowing you to manage who has access to your data room, which documents they see, and how they can interact with those documents.

Venue® data rooms are backed by RR Donnelley, a $10.2 billion corporation with more than 500 locations and nearly 60,000 employees worldwide. RR Donnelley’s total revenues are larger than all other virtual data room providers combined. Whether you’re conducting due diligence for a merger, raising capital, or developing a document repository, a Venue® virtual data room is the ideal virtual workspace for managing critical information.

RR Donnelley is the sponsor of the PitchBook 4Q 2013 Global PE & VC Benchmarking & Fund Performance Report. All information contained in this publication is for informational purposes only and should not be construed as legal, accounting, tax, or other professional advice of any kind, on any subject matter. RR Donnelley expressly disclaims all liability in respect to actions taken or not taken based on any or all the content herein.

PitchBook reports reach thousands of industry professionals every month. Interested in sponsoring or advertising? Email [email protected]



IntroductionPrivate equity (PE) and venture capital (VC) fund performance proved to be a mixed bag in 1Q 2013; strong distributions from PE funds to limited partners (LPs) led to higher cash multiples across most vintages, but horizon IRR figures fell slightly from the previous quarter. From 4Q 2012 to 1Q 2013, the one-year horizon IRR for PE funds dipped from 11.1% to 9.4% and fell from 4.5% to 3.5% for VC funds. Both PE and VC returns have been better in the longer three-year time horizon, but performance over the last five years continues to be hampered by the financial crisis.

PitchBook’s PME benchmarks show that PE and VC fund performance improved in 1Q 2013 but the asset classes lost ground against public equities, which posted their largest gains in the PME+ index since 2000—when we begin our calculation. In addition to our aggregated PME benchmarks, this report also includes a PME analysis of CalPERS’ commitments to alternative investment funds with a 2000 vintage or later, which can be found on page 8.

Aside from PE and VC funds, this report examines the performance of debt funds and funds-of-funds. When comparing the four aforementioned alternative investment classes, debt funds have been the top performers across all but two vintages from 2001 to 2011, with PE funds following closely in most years. Funds-of-funds are regularly in the middle of the pack and generate consistent returns across vintages. VC funds are the clear laggards for older vintage funds, but performance has improved dramatically for newer vehicles.

Distributions from PE funds to LPs, which have been surging in recent years, continued their strong run in 1Q 2013. PE firms returned $56.2 billion to investors while only calling down $22.0 billion, resulting in net cash flows of $34.2 billion. The situation was grimmer on the VC side; the $4.7 billion distributed to LPs in 1Q 2013 is off the mark set in recent years, but improved exit activity in 2Q and 3Q should lead to an imminent rebound in distributions.

We hope the information contained in this report proves insightful and acts as a starting point in your efforts to benchmark the performance of the PE and VC asset classes. If you have any questions, comments or suggestions, please contact us at [email protected].

PitchBook currently tracks more than 19,000 funds around the world. This Benchmarking Report includes performance data, net of fees, through 1Q 2013 from more than 6,400 global funds, as reported by LPs.

Russell Investments is the source and owner of the Russell Index data contained or reflected in this material and all trademarks and copyrights related thereto. Russell Investments is not responsible for the formatting or configuration of this material or for any inaccuracy in PitchBook Data, Inc.’s presentation thereof. For more information on Russell Investments and Russell Indexes, visit www.russell.com.

http://www.russell.com



An Introduction to PME BenchmarksIRR and cash multiples have been the gold standard of benchmarking for decades, but one of their main drawbacks is that they cannot be directly compared to indices that are used in mainstream asset classes. Public-market equivalent benchmarks (PMEs) effectively address this problem, making it possible to directly compare alternative asset fund performance to the performance of indexed asset classes by using fund-level cash flows.

As there are multiple ways to calculate a PME, PitchBook has employed both the PME+ and the Kaplan-Schoar PME methods:

PME+ Method:

where...

and...

Kaplan-Schoar Method:

A white paper detailing the calculations and methodology behind the PME benchmarks can be found at pitchbook.com. To find out how the PME benchmarks can be utilized to gauge performance of a specific fund or your fund portfolio, please contact us at [email protected].

NAVP M E+,t=St

s=0[ ]( IIts)contributionst( -

distributionst)lT **

lT = Sc NAVP E,T( - )Sd

Sc =ST

s=0 ]( IIs)*contributionst[ T

Sd =ST

s=0 ]( IIs)*distributionst[ T

PMEKS—TVPI, T=St=0

distributionIt

T t

St=0contribution

It

T t

NAVTIT (

()

)+

KS PME Benchmarks by Vintage YearPrivate Equity Kaplan-Schoar PME Benchmark by Vintage Year

Venture Capital Kaplan-Schoar PME Benchmark by Vintage Year

0.73

0.88

0.94

0.90

0.82

0.99

0.86

0.92 0.90 0.92

0.88

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

1.44

1.62

1.46 1.44

1.29

1.16

1.03

0.99 0.970.92 0.91

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

*When using the KS PME, a value greater than 1.0 indicates outperformance of the public index (net of all fees); a value less than 1.0 indicates underperformance. For example, the 0.73 value for 2000 vintage funds means investors in a typical vehicle from that year are 27% worse off investing in VC than if they invested in public equities over the same period.

*When using the KS PME, a value greater than 1.0 indicates outperformance of the public index (net of all fees); a value less than 1.0 indicates underperformance. For example, the 1.62 value for 2000 vintage funds means investors in a typical vehicle from that year are 62% better off investing in PE than if they invested in public equities over the same period.

The Kaplan-Schoar (KS) PME charts on this show the relative performance for a particular vintage of PE or VC funds against the specified index since inception. As to be expected, older PE funds have greater outperformance than their younger counterparts. VC funds have been disappointing, however, with not a single vintage since 2000 beating the Russell 2000® Growth Index.

Source: PitchBook

Source: PitchBook

PME calculated using Russell 3000® Index

PME calculated using Russell 2000® Growth Index

http://pitchbook.com



0

50

100

150

200

250

300

350

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20121Q 2013

Private Equity NAV Russell 3000® Index PME+ Vehicle

PME+ Benchmarks: PE and VCPrivate Equity NAV vs. Russell 3000® Index PME+ Vehicle

Source: PitchBook

Over the last 13¼ years, PE funds have generated a compound annual growth rate (CAGR) of 8.9%, compared to 2.8% for the Russell 3000® Index PME+ vehicle. Much of the run up in value for PE funds occurred from 2005 through 2007, when funds were distributing unprecedented levels of capital to their LPs, as well as investing record levels of capital at higher valuations and using more leverage than ever before. From 2005 through 2007, PE funds posted a CAGR of 26.9% compared to 8.2% for the Russell 3000®.

The PME+ calculation for VC shows quite a different story, with VC funds posting a paltry CAGR of -2.2% as of 1Q 2013, compared to 3.5% in the Russell 2000® Growth Index PME+ vehicle. The significant drop in value of tech companies after the dotcom bubble burst in the early 2000s has been the main drag on performance. Since then, venture funds have been relatively flat while the Russell 2000® Growth Index was able to recoup the early-decade losses it experienced throughout the middle of the decade.

Venture Capital NAV vs. Russell 2000® Growth Index PME+ Vehicle

Source: PitchBook

0

20

40

60

80

100

120

140

160

180

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Venture Capital NAV Russell 2000® Growth Index PME+ Vehicle 1Q 2013



0

20

40

60

80

100

120

140

160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Funds-of-Funds NAV Russell 3000® Index PME+ Vehicle 1Q 2013

0

50

100

150

200

250

300

350

400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Debt NAV Russell 3000® Index PME+ Vehicle 1Q 2013

PME+ Benchmarks: Debt and Funds-of-FundsDebt NAV vs. Russell 3000® Index PME+ Vehicle

Source: PitchBook

Debt funds were able to ride the buyout wave throughout the middle of the decade, generating a CAGR of 10.0% since 2000, compared with a CAGR of 4.1% in the Russell 3000® PME+ vehicle. The high levels of debt used in early- and mid-decade PE deals had been a major concern for many analysts and industry professionals, but PE firms have proven adept at managing the burden and have effectively avoided the predicted swath of defaults, which would be detrimental to the performance of debt funds.

To that end, debt funds dropped only 15.7% in value from 1Q 2008 to 1Q 2009, compared to the 24.3% drop seen in PE funds over the same period.

Funds-of-funds have been up and down over the last 13¼ years, with a CAGR of around 0% compared to the CAGR of 2.9% posted by the Russell 3000® PME+ vehicle. Returns from the asset class were significantly depressed in the early-2000s but have seen steady improvement more recently.

Funds-of-Funds NAV vs. Russell 3000® Index PME+ Vehicle

Source: PitchBook



0

50

100

150

200

250

300

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

CalPERS Alternative Investments NAV Russell 3000® Index PME+ Vehicle

0.80

0.90

1.00

1.10

1.20

1.30

1.40

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

KS-PME for CalPERS portfolio (Since Inception at Quarter End) Performance Equal to Russell 3000® Index1Q 2013

PME Case Study: CalPERS vs. Public MarketsKaplan-Schoar Rolling PME Calculation for CalPERS’ Alternative Investment Portfolio (2000 Vintage and Later)

CalPERS’ Alternative Investment Portfolio (2000 Vintage and Later) NAV vs. Russell 3000® Index PME+ Vehicle

Source: PitchBook

Source: PitchBook

The charts on this page illustrate how PitchBook’s PME benchmarks can be adapted to compare an LP’s portfolio of funds against public equity markets. For this analysis, we began the PME calculations in 2000 and aggregated all of

CalPERS’ contributions to and distributions from alternative investment funds with a 2000 vintage or later. This allows one to answer the question: “Would CalPERS have been wise to stop making new investments in PE and VC prior to 2000?”

Best & Worst CalPERS Investments since 2000

Carlyle/Riverstone Global Energy and Power Fund IIGranite Global VenturesNewbridge Asia IIILime Rock Partners IIT3 Partners II

2.62

2.542.502.482.46

KS PME

Best

Perfo

rmer

sW

orst

Perfo

rmer

s

*This graph shows a rolling KS PME value for CalPERS’ alternative investments in funds with a 2000 vintage or later. We have removed the first three years of calculations from the graph, as they are significantly impacted by the J-curve effect. As can be seen, CalPERS’ alternative investments have consistently outperformed the public markets, with the exception of 3Q 2004. With the recent strong performance of public equity markets, however, the outperformance of CalPERS’ alternative investments has waned over the last several quarters. Still, the System’s alternative investments since 2000 continue to boast outperformance of 6% over the Russell 3000® Index.

Source: PitchBook

Virgin Green Fund IHealthcare Focus FundNGEN Partners Fund IIAmerican River Ventures

0.180.130.080.01

Aberdare II Annex Fund0.19

Advent Global Private Equity IVGarnett & Helfrich Capital

2.412.36

Avalon Ventures VIIIWLR Recovery Fund II

2.232.14

Tallwood IICarlyle/Riverstone Renewable Energy Infrastructure Fund I

0.250.21

OVP Venture Partners VIRelativity Fund

0.270.25

Foundry Venture Capital 2007

Syndicated Communications Venture Partners V

2.10

0.28



0%

5%

10%

15%

20%

1-year 3-year 5-year 10-year

PE Funds VC Funds Debt Funds Funds-of-Funds

IRR by Asset Class

Source: PitchBook

Horizon IRR by Fund Type

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

PE Funds VC Funds Debt Funds Funds-of-Funds

Median IRR by Fund Type and Vintage Year

Source: PitchBook

When comparing the IRR performance of several major alternative investment classes over the last decade, PE and debt funds standout as clear leaders. Whether looking at the median IRR by vintage year or the horizon returns, the PE and debt asset classes boast strong outperformance over both VC and funds-of-funds. Debt funds have generated the highest performance across almost every vintage since 2001—with the exception of 2003 and 2009.

While the VC asset class lags across all time horizons in the last decade, when looking at performance by vintage year, it is evident that returns are improving. Interestingly, there is virtually no variance in the median IRR for funds-of-funds when comparing across vintage years, with the other asset classes showing wide swings depending on the vintage year of the fund.

“Debt funds have generated the highest performance across almost every vintage since 2001.”



Quartiles and BenchmarksPE IRR Quartiles by Vintage Year

VC IRR Quartiles by Vintage Year

Source: PitchBook

Source: PitchBook

Source: PitchBook

Funds raised in the years leading up to the financial crisis have suffered as a result of making investments when deal multiples were climbing to their apex. To that end, the top quartile IRR hurdle rate drops drastically from 28.5% for 2003 vintage funds to 15.8% for 2004 vintage funds and remains muted through 2006. Performance begins to improve with 2007 vintage funds, and there are indications that this trend will continue; these vehicles were placing their initial investments in the years after the financial crisis, when deal multiples cratered, and median hold periods are currently at an all-time high, meaning that many of these funds are only starting to realize their early investments.

The top quartile IRR hurdle rate for VC funds is less than 10.0% for each vintage 2001 to 2006, which is less than impressive when considering the high risk and illiquidity of the asset class. Performance has improved in more recent vintages, however, with the top quartile hurdle rate rising to at least 11.0% for 2007 to 2010 vintage funds. And it’s not just the top performers that have been on the rise. The bottom quartile IRR hurdle rate is negative for 2001 to 2006 vintage funds but has moved into the black for 2007 to 2009 vintage funds. While bottom quartile performance is certainly not the goal, this is definitely an encouraging development for the asset class.

Source: PitchBook

Vintage Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Top Quartile IRR Hurdle 6.2% 8.7% 8.6% 7.0% 9.0% 8.8% 11.1% 11.1% 18.6% 11.4%

Median IRR 2.2% 6.3% 1.9% -0.1% 1.9% 5.5% 5.4% 7.9% 17.3% 6.8%

Bottom Quartile IRR Hurdle -3.4% -5.6% -4.8% -8.2% -0.3% -0.9% 1.3% 3.0% 1.6% -7.9%


Median IRR 21.0% 20.3% 16.8% 12.5% 8.4% 5.7% 8.0% 11.0% 10.0% 7.9%

Bottom Quartile IRR Hurdle 12.5% 12.1% 9.7% 4.6% 3.3% 2.9% 4.6% 4.4% 7.0% 0.7%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

IRR 25th Percentile IRR Median IRR 75th Percentile

-10%

-5%

0%

5%

10%

15%

20%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010




-10%

-5%

0%

5%

10%

15%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

PE Bottom Quartile VC Bottom Quartile

Quartiles and BenchmarksPE and VC Top IRR Quartiles and Deciles Comparisons

Source: PitchBook

Source: PitchBook

PE and VC often get lumped into the same category, but as industry professionals know, there are several unique characteristics of each investment strategy that changes the risk profile and return expectations of investors. Both assets are illiquid, a fact that demands outperformance over public equities. But, generally speaking, VC is viewed as a higher risk asset class and, therefore, many investors expect higher returns than they do from PE. With the low success rates inherent in the VC industry, one may expect that median returns from the asset class will lag PE, but it is also assumed that with superb manager selection, VC will provide significant outperformance.

But as the chart on the upper right shows, top decile PE funds have outshined their top decile VC counterparts across virtually all vintages since 2001. In fact, for 2001 to 2004 vintage funds, the top quartile hurdle rate for PE funds is higher than the top decile hurdle rate for VC funds. VC performance has picked up in more recent vintages, but from 2001 to 2010 there is just one year where top quartile VC funds beat top quartile PE funds and only two years where top decile VC funds beat top decile PE funds—and that is by a mere 1%.

It is a well-known fact that manager selection is imperative in both the PE and VC asset classes. Few—if any—investors commit to a single PE or VC fund, so it is reasonable to assume that the average portfolio will have some a mix of performance. Considering this, not only is it important to have strong performance from top quartile and decile funds, but it is also imperative

to mitigate losses in the event that a commitment is made in a bottom quartile performer. As mentioned previously, VC funds are known to be more risky than PE vehicles, so the

fact that bottom quartile performance is lower for VC funds should not be too alarming. However, the degree of disparity is more significant than some may realize.

PE Top Decile & Quartile IRR vs. VC Top Decile & Quartile IRR by Vintage Year

PE Bottom Quartile IRR vs. VC Bottom Quartile IRR by Vintage Year

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

PE Top Decile IRR PE Top Quartile IRR VC Top Decile IRR VC Top Quartile IRR



-2%

0%

2%

4%

6%

8%

10%

12%

14%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010


2010

0%

5%

10%

15%

20%

25%

30%

35%

40%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010


Quartiles and BenchmarksDebt IRR Quartiles by Vintage Year

Funds-of-Funds IRR Quartiles by Vintage Year

Source: PitchBook

Source: PitchBook

The performance of debt funds raised in the mid-2000s suffered due to the trying economic environment that firms were lending in to. This is especially evident for top quartile performance, with the hurdle rate plummeting for mid-decade funds. Somewhat surprisingly, there is not much deviation with bottom quartile performance across vintage years. The gap between top and bottom quartile performers is fairly tight in most of the more recent vintages but widens significantly in older vintages, so it will be interesting to see if a similar divergence develops as these funds age.

Funds-of-funds performance follows a similar pattern as PE funds but with consistently lower performance from top-quartile vehicles. This should be expected, as the diversification of funds-of-funds reduces risk but also minimizes the chance for astronomical returns. Performance predictably lags for mid-decade funds, but it is fairly surprising to see that the bottom quartile hurdle rate continues to decline for more recent funds. Part of this is likely due to the J-curve effect, but it is still odd to see that the bottom quartile hurdle rate for PE funds raised since 2007 is actually higher than it is for funds-of-funds.

Source: PitchBook

Source: PitchBook


Median IRR 28.0% 21.3% 10.9% 14.1% 8.6% 6.6% 8.3% 12.9% 11.8% 9.0%

Bottom Quartile IRR Hurdle 11.4% 8.5% 6.3% 8.5% 6.6% 3.1% 7.8% 10.7% 11.6% 6.1%


Median IRR 10.1% 10.2% 9.4% 6.7% 5.7% 6.3% 6.9% 7.7% 8.1% 2.7%

Bottom Quartile IRR Hurdle 6.1% 8.1% 7.4% 5.8% 4.9% 4.4% 4.2% 2.4% 2.2% -1.2%



0%

5%

10%

15%

20%

25%

30%

35%


U.S. PE Funds European PE Funds Rest of World PE Funds

0%

5%

10%

15%

20%

25%


All PE Funds Under $250M $250M-$1B $1B+

Global PE IRRs

PE Horizon IRR by Region

Global PE Horizon IRR by Size Bucket

Source: PitchBook

Source: PitchBook

PE funds continue to post strong performance in the years since the financial crisis, with the one-year horizon IRR through 1Q 2013 coming in at 9.4% for all PE funds. There was little variance in performance in the one-year horizon period when breaking the funds out by size, with large funds generating slightly higher returns. This has been the norm, however, with funds of $1 billion or more producing the highest returns across all time horizons.

Small funds of $250 million or less significantly lag larger vehicles over the five- and 10-year time horizons but have been able to produce comparable returns to their larger counterparts more recently. Still, these vehicles have

underperformed larger funds in all horizon periods over the last decade and have generated returns of at least 10% only when looking at the 10-year time horizon.

The five-year horizon period continues to stick out as a decidedly poor timeframe for PE fund performance, but in the coming quarters this should begin to change as we become more removed from the financial crisis, which obviously greatly hampered fund performance. And despite the disappointing returns over the last five years, PE funds still boast strong gains in the 10-year period with an IRR of 19.0%.

“The five-year horizon period continues to stick out as a decidedly poor timeframe for PE fund

performance.”

“Small funds of $250 million or less significantly lag larger vehicles over the five- and 10-year time horizons.”



0x

.2x

.4x

.6x

.8x

1.0x

1.2x

1.4x

1.6x

1.8x

2 3 4 5 6 7 8 9 10 11Years since �nal close

2001 2002 2003 2004 2005 2006

1.64x1.49x

1.26x 1.17x

.73x.46x .43x .41x

.26x.14x .07x

.29x.35x

.41x.47x

.66x

.78x .84x .92x.96x

.98x.97x

1.92x1.85x

1.69x 1.64x

1.40x

1.24x 1.27x 1.32x1.22x

1.12x1.05x

0x

.2x

.4x

.6x

.8x

1.0x

1.2x

1.4x

1.6x

1.8x

2.0x

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

DPI RVPI TVPI

Global PE Fund Return MultiplesGlobal Average PE Fund Return Multiples by Vintage Year

Global PE DPI Multiples Over Time by Vintage Year

Source: PitchBook

Source: PitchBook

When looking at fund return multiples, one would anticipate higher levels of distributions for older funds—which is the case for 2001 to 2005 vintage funds. This trend breaks for 2006 to 2008 vintage funds, however, as there is virtually no variance in the average DPI figures for these vehicles. As we have discussed throughout this report, the performance of these funds was severely impacted by the financial crisis, which is creating some anomalies in the data.

For example, the average TVPI value for 2008 vintage funds is higher than 2007 vintage funds and is higher for 2007 vintage funds than it is for 2006 vintage funds. While this development is certainly disappointing for investors with commitments in 2006 and 2007 vintage vehicles, it suggests that fund performance is improving and that investors benefitted from the low deal multiples seen in the post-crisis years.

Fund performance is improving, with investors benefitting from the low deal multiples seen in the post-crisis years.



-$250

-$200

-$150

-$100

-$50

$0

$50

$100

$150

$200

$250

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*

Contributions ($B) Distributions ($B) Net Cash Flow ($B)

PE Fund Cash FlowsU.S. PE Funds Annualized Cash Flow by Year

Source: PitchBook

Net fund cash flows turned positive in 2011 and hit an all-time high of $71.2 billion in 2012. With PE funds distributing $34.2 billion more to LPs than they called down in 1Q 2013, and all indicators suggesting this trend will continue, 2013 is shaping up to continue the recent trend of strong cash flows.

As has been well-documented, PE investment activity plummeted in 1Q 2013, which resulted in a slow quarter for capital calls from LPs. Exit activity was also sluggish, but there was a good deal of activity in secondary public offerings, which kept distribution levels high.

Both exits and secondary public offerings have only increased throughout 2013, so distributions should remain high. Another trend that bodes well for distributions is the fact that 2006 to 2008 vintage funds have been slower to distribute

capital than early vintage funds and have significant RVPI values, as we explored on the previous page. Investment activity, while picking up throughout the year, remains low in

2013 due in large part to the flurry of activity in 4Q 2012. As such, capital calls should remain relatively low at least through 3Q 2013, which should help to keep net cash flows positive.

Source: PitchBook

Year Distributions ($B) Contributions ($B) Net Cash Flow ($B)2001 $22.92 ($34.12) ($11.20)

2002 $34.55 ($53.83) ($19.28)

2003 $49.45 ($55.59) ($6.15)

2004 $106.77 ($71.74) $35.03

2005 $106.40 ($92.81) $13.59

2006 $131.84 ($153.00) ($21.16)

2007 $153.27 ($194.01) ($40.75)

2008 $61.12 ($206.44) ($145.31)

2009 $52.95 ($98.07) ($45.12)

2010 $138.62 ($143.80) ($5.19)

2011 $176.89 ($153.91) $22.98

2012 $225.89 ($154.70) $71.19

2013 $56.24 ($22.04) $34.20

*as of 3/31/2013



Global VC IRRsGlobal VC Horizon IRR by Size Bucket

Global VC Horizon IRRs by Region

Source: PitchBook

Source: PitchBook

VC returns over the one- and three-year time horizons continue to disappoint, despite being better than the performance over the longer five- and 10-year timeframes. As shown in the chart on page 9, the VC asset class trails PE, debt and funds-of-funds over all time horizons in the last decade. Investors in larger VC vehicles have fared better than those in small funds. The sweet spot for VC investors has been funds with $250 million to $500 million in commitments, which have been the top performers over the one-, three- and five-year time horizons.

Returns from VC funds with $100 million or less have been flat or negative over the last decade,

consistently underperforming larger vehicles. And while returns for funds in the $100 million to $250 million size bucket have been weak recently, these vehicles outperform funds of other sizes in the 10-year horizon period.

When comparing VC returns by region, U.S.-based funds have significantly outperformed vehicles from other countries around the globe in both the one- and three-year time horizons. Considering this, and the fact that the U.S. has a more developed VC ecosystem than virtually every other country, it is surprising to see that rest of world funds have generated slightly higher returns over the longer 10-year time horizon.

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%


All VC Funds Under $100M $100M-$250M $250M-$500M $500M+

“The VC asset class trails PE, debt and funds-of-funds over all time horizons in the last decade.”

“The sweet spot for VC investors has been funds

with $250 million to $500 million in commitments.”

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%


U.S. VC Funds Rest of World VC Funds



.83x .76x .67x

.37x

.63x

.29x .25x .22x.10x .10x .07x

.39x.39x

.47x.83x

.92x

.90x .96x .99x1.13x

.95x 1.04x

1.22x 1.26x1.14x

1.20x

1.55x

1.19x1.27x 1.21x 1.23x

1.05x1.11x

0x

.2x

.4x

.6x

.8x

1.0x

1.2x

1.4x

1.6x

1.8x

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

DPI RVPI TVPI

Global VC Fund Return MultiplesGlobal Average VC Fund Return Multiples by Vintage Year

Global VC DPI Multiples Over Time by Vintage Year

Source: PitchBook

Source: PitchBook

The average DPI and RVPI for VC funds differs greatly by vintage year but, somewhat surprisingly, the average TVPI level is consistent across each vintage since 2001 (with the notable exception of 2005). And with the average RVPI level below 0.50x for 2001 to 2003 vintage VC funds, there is not much opportunity for appreciation in the future either. This is in stark contrast to the TVPI figures for PE funds (chart on page 14), where the average TVPI level reliably rises for older funds, as one would anticipate. With the steep rise in valuations in VC deals in recent years, one would expect VC funds to be seeing similar increases in RVPI values and, therefore, higher TVPI levels. For more on the record-high level of valuations in VC deals, see our 4Q 2013 VC Valuations & Trends Report, which contains analysis of pre-money valuations for more than 11,000 VC financings.

Somewhat surprisingly, the average TVPI level for VC funds is consistent across all but one vintage since 2001.

0x

.1x

.2x

.3x

.4x

.5x

.6x

.7x

.8x

.9x

2 3 4 5 6 7 8 9 10 11Years since �nal close

2001 2002 2003 2004 2005 2006

1.0x

http://pitchbook.com/4Q2013_VC_Valuations_and_Trends_Report.html

http://pitchbook.com/4Q2013_VC_Valuations_and_Trends_Report.html



-$40

-$30

-$20

-$10

$0

$10

$20

$30

$40

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*

Contributions ($B) Distributions ($B) Net Cash Flow ($B)

VC Fund Cash FlowsU.S. VC Funds Annualized Cash Flow by Year

Source: PitchBook

After being in the red for eight consecutive years, VC fund cash flows have shown steady improvement since hitting a nadir in 2008. In fact, 2012 marked the first year that net VC cash flows had been positive since 2003, but weak distributions in 1Q 2013 once again pulled cash flows into negative territory. The $4.7 billion returned to LPs in 1Q 2013 has set a pace far below the previous two years, but that doesn’t tell the whole story.

Exit activity reached a post-crisis high in 2012 both in terms of exit flow and capital exited thanks in large part to Facebook’s IPO and the threat of higher taxes in 2013. To that end, 1Q 2013 was the slowest quarter for exits in more than three years. Furthermore, many of the exits in 1Q—as well as later in 2013—have come via IPO. These exits generate a smaller dollar value than a merger or acquisition initially, but the valuation tends to be higher and investors have the

opportunity to realize additional capital appreciation down the road.

Exit activity has accelerated throughout 2013, which bodes well for distributions to LPs in the coming

quarters. And with investment activity being essentially flat over the last two years, cash flows are likely to climb back into the black as we advance through 2013.

Source: PitchBook

Year Distributions ($B) Contributions ($B) Net Cash Flow ($B)2001 $16.12 ($20.71) ($4.59)

2002 $9.99 ($19.72) ($9.74)

2003 $28.47 ($20.72) $7.74

2004 $10.51 ($22.28) ($11.77)

2005 $12.30 ($25.69) ($13.39)

2006 $16.80 ($28.02) ($11.22)

2007 $27.13 ($28.68) ($1.55)

2008 $14.10 ($26.74) ($12.63)

2009 $11.43 ($19.27) ($7.84)

2010 $15.91 ($22.94) ($7.03)

2011 $25.34 ($25.44) ($0.10)

2012 $25.44 ($22.71) $2.72

2013 $4.72 ($6.97) ($2.24)

*as of 3/31/2013



MethodologyPitchBook currently tracks more than 19,000 funds around the world and has returns data on more than 6,400 vehicles. In the quarterly Benchmarking Reports, PitchBook examines data from more than 16,700 distinct LP commitments. We are constantly adding historical performance data as it becomes available; this explains any apparent discrepancies that may appear between reports.

All returns data in this report is net of fees through 1Q 2013, as reported by LPs.

DEFINITIONS

PE Fund: Unless otherwise noted, PE fund data includes buyout, growth, co-investment, mezzanine, restructuring and energy funds. Debt Fund: For this report, the debt fund classification includes general debt, mezzanine and distressed debt.

Vintage Year: The vintage year as reported by the fund GP and LPs, or the year in which a fund holds its final close.

Internal Rate of Return (IRR): IRR represents the rate at which a series of positive and negative cash flows are discounted so that the net present value of cash flows equals zero.

Horizon IRR: Horizon IRR shows the IRR from a certain point in time. For example, the one-year horizon IRR figures in this report show the IRR performance for the one-year period from 1Q 2012 to 1Q 2013, while the three-year horizon IRR is for the period from 1Q 2010 to 1Q 2013.

DPI (Distributions to Paid-In): A measurement of the capital that has been distributed back to LPs as a proportion of the total paid-in, or contributed, capital. DPI is also known as the cash-on-cash multiple or the realization multiple. RVPI (Remaining Value to Paid-In): A measurement of the unrealized return of a fund as a proportion of the total paid-in, or contributed, capital.

TVPI (Total Value to Paid-In): A measurement of both the realized and unrealized value of a fund as a proportion of the total paid-in, or contributed, capital. Also known as the investment multiple, TVPI can be found by adding together the DPI and RVPI of a fund.

PitchBook

Want to know how your funds stack up?

...or let us do the nerdy work.

Solve for PME:

PitchBook’s PME Indices & Benchmarksavailable in the 4Q 2013 Global PE & VC Benchmarking Report

[email protected] Call: 1-877-636-3496

Contact us for a complimentary analysis of your funds using the new industry standard:

REPORT HIGHLIGHTS - WOLFMAN.ONE® · 2020-03-30 · Report E 4 2013 Globa PE VC PitchBook G Page 8 - An analysis of CalPERS’ alternative investments since 2000 using PME benchmarks

Documents