PRIVATE EQUITY NAVIGATOR. Private Equity Analysis from Pevara & INSEAD s Global Private Equity Initiative

Transcription

1 PRIVATE EQUITY NAVIGATOR Private Equity Analysis from Pevara & INSEAD s Global Private Equity Initiative Quarterly Report September 2014

2 INTRODUCTION Welcome to the fourth edition of the INSEAD Pevara Private Equity Navigator. Following two intermediate quarterly reports that focused on key changes in the market quarter-onquarter, the availability of half-yearly figures means this report 1 is more comprehensive and delves into a wider range of issues relating to private equity, such as for the first time fundraising and geographic reporting of numbers. It thus provides more granular information and greater insight. As always, our concern is for timely and reliable reporting of industry data and performance. The data provided here is from limited partners fund investments as at 30th June 2014, representing a fast turnaround that facilitates robust analysis. This edition of the report has three parts: Part 1 updates readers on changes in key activity metrics in the private equity industry. It includes fundraising numbers, which means we now provide data on the whole life cycle of private equity, from fundraising to capital calls and capital distributions. Part 2 presents key performance metrics of the industry, including quarterly changes, as well as analysis of variance in performance. In Part 3 we share the learning from our model portfolios set up a year ago. Inspired by stockpicking portfolios in the public equity markets, we look at some of the specific challenges investors face in building a portfolio in the private equity markets. In our continued efforts to provide a research product with a full suite of industry data, we hope you find the new sections insightful. As always, we welcome your feedback. EXECUTIVE SUMMARY Q In Q2 2014, the long-term trend of high quarterly realisations and low capital calls continued (p. 3), suggesting most managers are in exit mode. North America has been the by far most active region since 2006, with the largest amount of private equity in terms of fund-raising, capital called and capital distributed (pp. 4, 5 & 6). Quarterly MIRR performance in Q weakened after a year of strong returns in 2013 (p. 7). Compared to a global diversified public equity index, private equity performed strongly (as measured by MIRR) over the long term. However, the recent bull run on public equities left PE behind when measured on a shorter horizon (p. 8). For the vintage, North American funds are the only ones to beat benchmark returns, with Asia and Europe both trailing (p. 10). In our portfolios, too, North American buyout funds provided the highest TVPIs, MIRRs and realisations (p. 13). A year in, our model portfolios are providing interesting insight into portfolio construction, cash flow management and performance (p. 11). 1 Details of methodology and a glossary can be found on GPEI s website. 1

3 PRIVATE EQUITY ACTIVITY In this section we look at activity levels in the industry more specifically at the amount of capital raised and invested by fund managers and distributed to investors. The data comes from more than 2,400 PE funds invested by around 30 limited partners, representing a more-than-adequate proxy for levels of activity in the industry and changes in the rate of activity. While the PE industry is larger and the data in this report is a representative proxy only, our dataset is derived directly from LPs, and hence is more accurate than data obtained from a range of other sources. Aggregate analysis of activity levels The graph below summarises activity levels for capital raised, capital called, and capital distributed. Successful fundraising 2 is, of course, the necessary foundation for any subsequent investment activity, yet it is highly dependent on the overall health of the industry, specifically the amount of recent distributions. Distributions are the lead indicator, as can be seen from the chart. There was a major fall in the amount of capital distributed in 2008, but only a marginal slowdown in capital raised (and that only in the second half of the year). Similarly, while distributions picked up in 2010, fundraising only bounced back in 2011, clearly demonstrating a lag fundraising tends to slow down after a slow year of distributions, with an uptick after a period of healthy distributions. From an LP perspective, receiving capital from GPs means (a) greater liquidity, and (b) greater scope to allocate capital to private equity while maintaining its net commitment to PE. Both serve to benefit fundraising, which is just as well as from a GP perspective: high capital distributions mean the GP is in harvesting mode and moving closer to the point where it could go on to raise a new fund. 2 The amount of capital raised is measured for funds of that vintage, as opposed to the total amount of capital raised in a particular year. This means, for example, that funds of 2006 vintage raised a total of $ billion. We do not use 2013 numbers in this instance since complete data on the amount of capital raised by 2013 vintage funds is not yet available. 2

4 Now, if we follow the PE lifecycle and start with fundraising, then activity took the biggest hit in 2009 and declined further in 2010 following the financial crisis. It subsequently recovered, with funds of 2011 and 2012 managing to raise more money than their 2009 and 2010 predecessors. However, the average fund size for these vintages is still about $300 and $400 million, smaller than in 2008 or Capital calls exhibit the narrowest contraction of our activity indicators, with only 2009 as a distinctly down year. The prior years strong fundraising allowed and in some cases required 3 funds to continue investing. As for more recent quarterly data, capital calls in Q fell for the second quarter in a row to $26.83 billion, although it was higher than the $20.85 billion called in Q At $56.22 billion, the capital distributed in Q was the lowest quarterly distribution since Q Distributions have grown year-on-year since 2009, suggesting private equity portfolios have matured and that more divestments are happening. However, they have been declining for the last three quarters. In the first six months of 2014, capital distributions stood at about $118 billion, while only $54 billion was called by PE funds. In each of the last four quarters the gap between capital distributed and capital called has somewhat narrowed, from $38 billion more distributed in Q to about $30 billion more distributed in Q This gap has little explanatory value given that the industry overall is generating positive returns, so one would expect significantly higher distributions than capital calls in a steady state (which remains elusive given the strong overlaying cycles in fundraising and investment activity). A somewhat better comparison would be funds raised in the past linked to current distributions. 4 If we go back 5.5 years, taking the funds raised during the four quarters of 2008 the figures are as follows: $212bn raised vs. $251bn distributed, or a ratio of Due to expiry of the investment period. In fact, 2009 and 2010 saw a number of funds extend investment periods. 4 We do not have access to portfolio company level data that would allow us to perform this matching exercise on a more granular basis, yet we know from a variety of sources that average holding periods for the industry for the last few years have been between five and six years. 3

5 Regional analysis of activity levels Another way of looking at activity levels is regional, as per the diagram below and over the following pages. 5 Between 2006 and 2012, North America was (not surprisingly) the most active private equity market in every sense total capital raised, aggregate capital called, and capital distributed. On subsequent pages, we look at regional comparisons in greater detail. A regional comparison of private equity activity ( ) Fundraising Between 2006 and 2012, a total of $804 billion was raised by private equity funds for North America, as compared with $421 billion for Europe, and $84 billion for Asia. 6 After a heady few years characterised by high levels of liquidity in the market, fundraising dropped severely post Funds of the 2009 vintage were particularly badly hit as the global financial meltdown took its toll on institutional investors worldwide who had to adjust allocations to the different asset classes in their portfolios. 5 Note that the numbers are based on data provided by mainly large and Western LPs who have more traditional portfolios with a certain home bias, which explains why Asian numbers are smaller than expected. 6 That Rest of the World numbers are hardly noticeable is once again because the large institutional LPs in our database remain focused on the mature PE markets of NA and Europe, markets that are also dominated by funds that can absorb the large commitments these LPs prefer to make. 4

6 Given the drop in equity markets globally, many investors were over-allocated to private equity, compelling them to halt PE equity commitments and in several cases actively reduce their exposure by selling their interests in funds through secondary fund transactions. All regions were hit hard in 2009, including North America, which saw fundraising plummet from $168.1 billion for 2008 vintage funds to $35.3 billion. Fundraising in Asia dropped from $14.8 billion to $4.6 billion, while the amount of capital raised by Europe-focused funds declined to $26.7 billion from $98.7 billion. One of the often talked about themes in private equity is Asia s emergence as an important region for the global PE industry. The economic slowdown in the West is part of this narrative, the assumption being that since economic growth in (emerging) Asia was largely unaffected in the years following the financial crisis, a growing number of investors would switch a larger share of their capital to the region. But regional fundraising numbers from Pevara s database only partly support this thesis. While Asia s share of global fund-raising jumped spectacularly from 6.7% for funds of the 2009 vintage to more than 21% the following year eclipsing Europe in the process it soon returned to pre-crisis levels of between 4% and 7%. Yet with the overall recovery in fund-raising, in terms of absolute size the Asian market has come of age and is now a major market for private equity firms and advisors alike. One can also see the share of capital raised by North American funds gradually increase since 2009, and a corresponding decline in Europe s share of fundraising, perhaps reflective of the stronger recovery in the US and continuing uncertainty in Europe. In effect, by 2012 the market structure was broadly back to precrisis levels and remains US-centric. Capital calls On the transaction side, North America remains the most active market for private equity investments, as reflected in the amount of capital called by PE funds. In the first half of 2014, $31.7 billion was called by funds investing in North America, compared with $18.4 billion for Europe and $3.6 billion for Asia. The increasing prominence of Asia as an investment destination is more evident when one uses capital called as a metric for private equity activity (as opposed to fundraising). The amount of capital called by funds investing in Asia has increased steadily over the last decade, highlighting a pick-up in investment activity in the region. In 2005, Asia accounted for a paltry 1.5% of capital called globally. This share increased to 7.9% in 2012, falling slightly to 6.6% in the first half of

7 A better illustration may come from using $ amounts, as only $1.26 billion was called by funds for investing in Asia in This increased to $10.57 billion in 2008, before slumping in 2009 (in line with the global trend) to $5.4 billion. The amount of capital called for Asian investments peaked in 2012 at $12.35 billion. Over the same period, Europe has seen its share of capital called increase from 30% to 34%, whereas North America s declined from 67.4% in 2005 to less than 59% in the first half of 2014, with the lowest share recorded in 2012 (55.56%), the year in which Europe and Asia recorded their highest shares. The difference with fundraising numbers points to the fact that many nominally North American funds now regularly invest overseas, particularly in Europe. Capital distributions The first half of 2014 saw $118 billion returned to LPs. Of this, $81.9 billion was returned by funds investing in North America, $28.8 billion by funds investing in Europe, and $6.56 billion by funds investing in Asia. On aggregate, 2013 was the best year for all three regions, with North American funds distributing $169.5 billion, and European and Asian funds distributing $73 billion and $10.33 billion respectively. This was a welcome development for LPs, particularly considering that exits had almost come to a halt from the latter half of 2008 until the early part of In 2009, for instance, PE funds globally distributed just $31.5 billion. To put that figure in perspective, North American funds alone distributed more capital than that to their investors in all other years between 2005 and In contrast to total share of capital called, North America s contribution to total capital distributions increased marginally between 2005 and the first half of Its global share peaked at 74.4% in 2009, and stood at 66.5% in Asia saw its share of capital distributions increase from 2.2% in 2005 to 4.1% in 2013, and to 5.6% in the first half of No doubt this strong performance (as compared to unrealised returns or NAV increases) has helped North American funds maintain their lead in fundraising. 6

8 RISK & RETURNS In the first part of this section we compare three ways in which annual performance 7 can be measured: The internal rate of return (IRR), the conventional but theoretically unsound performance measure of the industry. 8 The Pevara Index, which calculates IRRs using the Modified Dietz Method, which improves on the IRR by accounting for the timing of cash flows within a period. The modified internal rate of return (MIRR), which assumes more realistic re-investment opportunities for investors. 9 We then provide a geographic analysis of MIRR returns. The second part of this section looks at the variance in performance by quartiles and across geographies. Private equity returns In the first quarter of 2014, 10 the private equity industry recorded returns of 2.47%, the lowest quarterly MIRR since the second quarter of In the preceding quarter, the MIRR stood at 5.54%, which marked quarterly returns of more than 5% for the first time in three years. Q MIRR returns were also lower than the Q MIRR of 3.75% and Q MIRR of 4.98%. After a period of increasing returns throughout 2012 and 2013, this year began on a weaker note. IRR vs Annual Pevara Index Returns vs MIRR 7 All net returns after fees and carried interest 8 The two main issues with IRR, namely the re-investment hypothesis on intermediary distributions and the cost of uncalled capital, are discussed in detail in the December 2013 issue of Private Equity Navigator. 9 This report uses a discount rate for capital calls of 12% with a 10-year horizon, and equally assumes that proceeds will be reinvested at a rate of 12%. For more details, refer to the December 2013 issue of Private Equity Navigator 10 Returns for Q are not available due to the time required by the funds for the internal NAV valuation process. 7

9 We compare MIRR performance 11 of the private equity industry with the MSCI ACWI. 12 In 2013, the MSCI ACWI provided returns of 23.44%, its best performance since 2009 (35.41%). In contrast, the industry produced an MIRR of 16.48%. The industry s 14-year MIRR performance since 2000 is strong compared with the MSCI ACWI over the same period, with a 9.62% annual return vs. 3.69% for the public index. However, if one considers a 5-year horizon starting after the worst of the financial crisis in 2009, the PE industry s MIRR stands at 12.96%, vs % for the MSCI ACWI. Private equity is often misinterpreted as being a less volatile asset class than public equities. However, this is in large part a function of the infrequent valuations performed and the time lag in applying mark-tomarket valuations. The year 2008 nicely illustrates this on an annual basis, when the public index dropped by 42%, while private equity returns stood at a comparatively modest -18%. MIRR returns for the PE industry as a whole have recovered since 2008, barring a blip in The blip was most pronounced in Asia, where MIRR returns in 2011 fell to -1.77% from a very healthy 20.26% the previous year. The Asian PE industry bounced back, registering returns of between 11% and 12% in both 2012 and Note that in both years when returns dipped significantly (2008 and 2011), returns from the Asian PE industry were worse than those from North America and Europe, suggesting higher volatility in Asian private equity compared to more mature markets. Likewise this was evidenced in the recovery posted by the PE industry globally in 2009, where MIRR returns from Asia stood at 19.38%, compared with 10.98% for North America and 7.65% for Europe. Asia was also the best performing market in Average returns between 2005 and 2013 globally stood at 12.19%, Europe being the only region which outperformed the global benchmark with an average annual return of 13.57% during this period, compared with 11.95% for North America and 9.92% for Asia. However, private equity performance gathered steam in North America in 2013, a year in which it saw an MIRR return of 19.75%, comfortably outperforming both Europe (12.58%) and Asia (11.49%). 11 Unlike IRR, the MIRR can be used for comparison with public markets as it accounts for the cost of capital until investment and assumes reasonable re-investment rates (we use a reinvestment rate of 12%). For a discussion of the qualities of MIRR, see the inaugural edition of Private Equity Navigator, as well as the glossary. 12 We use the MSCI ASCI for reference only. The index has 2,446 constituents from 23 developed markets and 23 emerging markets, and covers approximately 85% of the global investable equity opportunity set. 8

10 Variance This section focuses on variance in the performance of private equity funds by vintage year, and subsequently by geography, beginning with a breakdown of industry returns by managers grouped into quartiles. The chart below represents the range of returns by vintage for all private equity funds in the Pevara Index 13 between 2005 and Upper and lower ranges for all quarters are shown, as well as arithmetic and pooled means. 15 Benchmark IRR Quartiles by Vintage Year Arithmetic Mean 7.97% 5.87% 5.70% 7.49% 8.39% 5.51% Pooled Mean 8.73% 5.68% 8.19% 10.08% 14.29% 8.73% Median 6.86% 6.27% 7.23% 7.93% 7.64% 6.17% Standard Deviation 12.35% 10.04% 11.57% 10.22% 12.84% 13.42% We see that upper and lower boundaries as well as average performance per vintage fluctuate significantly. Funds of the 2006 vintage have the lowest pooled mean of 5.68%, and also the lowest range around the mean. Funds of all subsequent vintages provided better returns on average, with the 2009 vintage recording returns of 14.29%. This variance shows that investing across funds of multiple vintages gives investors exposure to various points of the industry cycle. There is a significant difference between arithmetic ( average ) returns and pooled returns, in particular for vintages Pooled mean returns are significantly higher (almost six percentage points in 2009), which is explained by a stronger-than-average showing of larger PE funds in these vintages. Within the same vintage years there is significant variance in performance between managers. Funds of the In this section we use the Pevara Index, allowing for easy extraction of volatility measures from the database. 14 We do not include funds from younger vintages as they are still in their investment period, hence preliminary returns are likely to change substantially. 15 The arithmetic mean is calculated as the average of the IRRs of each of the PE funds as single entities without consideration of fund size. The pooled mean, on the other hand, is calculated as the average of the IRRs of private equity funds on a dollar-weighted basis. 9

11 vintage display the greatest range in IRR performance, ranging from 30.97% at the top end of the first quartile to % at the bottom end of the fourth quartile. The standard deviation 16 in percentage points of returns lies between 10.04% and 13.42%. If we look at the still relatively immature vintage of 2010, standard deviation is 13.42%, while the arithmetic mean IRR stands at 5.51%. Applying the empirical rule 17 would allow us to conclude that 68% of the funds currently have an IRR of between -7.91% and 18.93% (within one standard deviation of the mean), and 95% have an IRR of between % and 32.35% (within two standard deviations of the mean). We would expect to see a reduction in performance variance as these vintages mature. Benchmark IRR Quartiles (Vintages ) by Region At a global level, funds of vintages collectively have a pooled mean of 7.95%. Only North American funds outperform this measure with a pooled mean of 8.54%. Funds of the same vintages investing in Europe and Asia have pooled means of 6.93% and 6.48% respectively, implying that North American private equity funds of these vintages performed better on average and on aggregate. When we consider the range of performance per region for all funds of vintages , we see the greatest range among North American PE funds, from 26.77% at the top end of the first quartile to -7.58% at the bottom end of the fourth quartile. However, this is only marginally more than the variance in the performance of funds investing in Asia and Europe. All things being equal, investors were likely to achieve the highest returns from investing in North American funds. However, this would have required a continuous allocation across vintages given the strong variation in fund performance across different vintages for the same region (as shown in the earlier chart). 16 The calculation of the standard deviation is based on the arithmetic mean of the IRRs of all private equity funds in a particular sample. The lower the standard deviation for a particular year, the closer the funds to the arithmetic mean. 17 It needs to be stated that this is a conscious oversimplification as private equity returns do not follow a bell-shaped distribution (normal distribution). 10

12 MODEL PORTFOLIO In December 2013, we set out to explore how an institutional investor manages a private equity portfolio. To do this, we put ourselves in the shoes of a large institutional investor and created two hypothetical portfolios. 18 The first one broadly mirrored the market (i.e. focus on buy-outs and US) while the other had more exposure to growth capital-focused strategies and emerging markets (mostly Asia). In addition we gave our original portfolios a starting advantage by only selecting funds from the top three quartiles, implicitly assuming selection skill. 19 One year later, what are our key insights? Ballooning Portfolio: One of the biggest challenges for an investor is to maintain a certain gross commitment to the asset class. For our two hypothetical $1bn portfolios, within only three additional quarters after the launch, we had to commit a further $290 million to four funds in Portfolio 1 and $200 million across six funds in Portfolio 2. This has two practical implementations: (a) an investor must constantly be in the market consuming significant internal or external resources just to maintain the portfolio. (b) By adding new funds to our portfolio, it gets bloated and could soon result in too many relationships to manage efficiently. Both these points may in part explain the attraction of adding PE exposure through secondaries or co-investments with established funds as they provide the required exposure without the cost of selection and portfolio maintenance (i.e. doubling down on known entities). Difficult Diversification: It is difficult to build and maintain (see previous point) a diversified portfolio along the three major dimensions of vintage, geography and investment strategy, given the nontransparency of the industry as well as the cost associated. We have perfect (although anonymous) insight into more than 2,400 funds in the Pevara database, something that is available to only a few of the largest investors. In practice, investors are likely to opt for an imperfect portfolio overweighting certain criteria. This in part explains the persistence of home bias investing in PE investing. Predicting the J-Curve: In absolute terms, both portfolios have so far had a cumulated negative net cash flow of less than $600 million, meaning for every dollar put to work in PE over time we only needed a maximum of 60 cents in cash. In Portfolio1 we seem to have reached the low point after five years, with large distributions more than offsetting ongoing capital calls. For Portfolio 2 we are still unsure as to whether we have seen the lowest point in the curve yet. This illustrates how challenging cash flow management is even for diversified portfolios cash flows being impacted by hard-to-predict factors such as the exit environment and fund selection. Performance: Our portfolios, including funds from , are now on average three years old. The value of Portfolio 1 stands at a Total Value to Paid-in Capital [TVPI = Cumulative Distributions + Period NAV 20 divided by paid-in capital] of 1.31x. This means that about 31% value over the investment cost has been created, equating to a current portfolio IRR of 13.20% and an MIRR of 12.44%. The TVPI for Portfolio 2 stands at 1.25x, implying that 25% value or $196.7 million over the investment cost has been created. This leads to a portfolio IRR of 10.60% and a slightly higher MIRR of 11.47%. These are decent numbers for such young vintages (consider the J-Curve), no doubt helped by early realisations in the strong exit environment over the last two years. Nevertheless most of the value lies still in the portfolios, with 74% in Portfolio 1 and 82% in Portfolio A detailed summary of the current geographic and strategy spread of our two portfolios is given in the Appendix, including the IRR, MIRR, TVPI and NAV of all individual funds. 19 For a more detailed look at how the portfolio was created and is managed, and portfolio allocation strategies, please refer to the Private Equity Navigator Methodology on GPEI s website. 20 While distributions and capital calls are real time, NAVs trail by one quarter due to the lengthy internal valuation process at PE funds. 11

13 J-Curve and cash flows The charts below depict the cash flows associated with the two portfolios: drawdowns (capital called), distributions, and the resulting net cash positions (J-Curve) (only including the original 20 funds). In Q2 2014, the original funds in Portfolio 1 saw capital calls of $38.39 million and distributions amounting to $22.26 million, in contrast to the last quarter where more capital was distributed than called. As a result, the net drawdown for this portfolio increased to $ million, having decreased the previous quarter, reversing the shape of our cumulated cash flow curve. In the case of Portfolio 2, we have seen capital calls and distributions amounting to $52.54 million and $35.67 million respectively, largely a continuation of what happened last quarter. The net drawdown for this portfolio currently stands at $586.6 million as a result of far more capital being called than distributed compared to Portfolio 1. Comparison of portfolio returns Looking at the performance of the more mature funds (vintages ) in the two portfolios, Portfolio 1 still continues to outperform Pevara all funds, which represents the market portfolio of all funds from these vintages in the database. With its heavy bias toward US buyout funds, it also outperforms Portfolio 2, which has itself performed marginally better than the market portfolio. The two vintages during which the market portfolio performs very differently from both our portfolios are 2010 and For funds of the 2010 vintage, both our portfolios comfortably beat the market by about 15 percentage points. For funds of the 2011 vintage, the market outperforms our two portfolios by at least five percentage points. For reference, we also include a Combined portfolio of all funds from our two portfolios. The performance of this wider portfolio naturally falls between Portfolio 1 and 2 and shows less volatile performance (classical diversification benefit). 12

14 Comparison of funds by strategies/ geographies In this section we analyse the performance of funds across our two original portfolios (i.e. funds of vintages ) according to geography, strategy, or both. The clusters we have created can overlap (e.g., an Asian late/expansion fund will be a part of both Asia all as well as Global growth ). Fund activity in $bn by geography and strategy (vintages ) As for portfolio weighting, the most capital has been allocated ($900 million) and called by US buy-out funds ($ million). In all, across our two portfolios, commitments to US buyout funds account for 45% of the total $2 billion. This heavy weighting (especially in Portfolio 1) towards US buy-out funds has paid off well. US buyout performance across our portfolios currently stands at 14.34% MIRR and a TVPI of 1.44x, the highest of any of the major strategies. They have also returned the highest proportion of capital relative to capital called, and thereby have (at least in part) locked in these returns. As for the other strategies, Asia all, Global VC and Global growth all have returned MIRRs of between 11%- 12% and almost identical TVPIs. The worst performers in our portfolio are European buy-out funds with an MIRR of 9.1% and a TVPI of 1.12x. It is interesting to see how markedly different randomly selected buy-outs (i.e. the perceived most stable segment of PE) have performed in the two major Western markets (again the perceived least volatile environments). 13

15 APPENDIX Portfolio 1: Strategy: Buyouts 81.8%; Growth 3.1%; Venture 4.3%; Others (Distressed & Mezzanine) 10.9% Geography: North America 71.7%; Europe 21.7%; Asia 4.3%; Other Emerging Markets 2.3% Figures in Millions Fund Vintage Strategy Geography Committed Called Remaining Distributed NAV TVPI IRR MIRR Quartile Fund Bu you t US (85.49) x 21.13% 16.80% 1s t Fund Bu you t US (76.25) x 24.98% 19.75% 1s t Fund Bu you t US (56.24) x 18.82% 15.06% 1s t Fund Bu you t US (68.61) x 34.01% 20.87% 1s t Fund Bu you t US (47.88) x 14.67% 12.94% 1s t Fund Bu you t US (25.65) x (13.39%) (2.65%) 4th Fund Bu you t W. Eu rop e (49.74) x 8.36% 9.71% 2n d Fund Bu you t W. Eu rop e (73.45) x 3.18% 8.27% 3rd Fund Bu you t W. Eu rop e (58.05) x (16.88%) (4.17%) 4th Fund VC R.o.W (13.93) x (0.27%) 3.98% 4th Fund VC US (12.74) x 15.22% 13.70% 2n d Fund VC W. Eu rop e (18.74) x 3.89% 7.76% 2n d Fund VC W. Eu rop e (7.25) x 0.56% 7.85% 2n d Fund Bu you t As ia/p acific (7.51) x 14.44% 13.71% 2n d Fund Late/Exp an s ion R.o.W (12.11) x 23.83% 17.69% 1s t Fund Late/Exp an s ion As ia/p acific (8.44) x (3.53%) 0.19% 4th Fund Op p ortu n is tic As ia/p acific (14.31) x 4.64% 8.39% 3rd Fund Distressed Debt US (2.64x) 17.35% 27.31% 2nd Fund Mezzanine Capital US (27.24) x (40.37%) (25.40%) 4th Fund Distressed Debt W. Europe (20.40) x 9.60% 10.35% 2nd Fund Bu you t US (7.66) x (16.10%) (4.44%) Fund Bu you t US (9.88) x (7.75%) (6.22%) Fund Bu you t US (18.63) x (15.57%) (6.18%) Fund Bu you t US (9.78) x (12.31%) (9.78%) All 1, (723.92) x 13.20% 12.44% Portfolio 2: Strategy: Buyouts 64.2%; Growth 17.5%; Venture 6.7%; Others (Distressed & Mezzanine) 11.7% Geography: North America 41.7%; Europe 35%; Asia 18.3%; Other Emerging Markets 5% Figures in Millions Fund Vintage Strategy Geography Committed Called Remaining Distributed NAV TVPI IRR MIRR Quartile Fund Bu you t US (89.39) x 7.91% 9.13% 3rd Fund Bu you t US (68.61) x 34.01% 20.87% 1s t Fund Bu you t US (66.76) x 3.67% 6.29% 3rd Fund Bu you t W. Eu rop e (65.96) x 7.90% 9.92% 2n d Fund Bu you t W. Eu rop e (90.57) x 4.75% 7.99% 3rd Fund Bu you t As ia/p acific (0.65) x (7.96%) 0.93% 4th Fund VC US (21.30) x 38.05% 26.27% 1s t Fund VC US (16.20) x (30.21%) (1.13%) 4th Fund Late/Exp an s ion US (29.29) x 26.85% 20.44% 1s t Fund VC R.o.W (10.90) x 26.30% 17.84% 1s t Fund Bu you t W. Eu rop e (28.28) x 27.00% 20.56% 1s t Fund Bu you t R.o.W (14.39) x (11.16%) (1.06%) 4th Fund Late/Exp an s ion As ia/p acific (16.58) x (0.33%) 1.70% 4th Fund Late/Exp an s ion As ia/p acific (11.69) x (0.03%) 2.88% 3rd Fund Late/Exp an s ion As ia/p acific (24.62) x 21.17% 17.77% 1s t Fund Late/Exp an s ion W. Eu rop e (24.67) x (7.56%) 4.63% 3rd Fund Late/Exp an s ion W. Eu rop e (53.46) x (0.74%) 4.79% 3rd Fund Distressed Debt US (31.42) x 18.09% 15.78% 1st Fund Bu you t As ia/p acific (17.60) x 13.29% 12.72% 2n d Fund Distressed Debt W. Europe (86.11) x 11.90% 11.97% 2nd Fund Bu you t W. Eu rop e (7.03) x (2.95%) (1.20%) Fund Bu you t US (7.66) x (16.10%) (4.44%) Fund Late/Exp an s ion As ia/p acific (2.65) x (35.61%) (22.32%) Fund Bu you t W. Eu rop e (4.22) x (21.50%) (20.82%) Fund Distressed Debt US (5.54) x (13.81%) (1.99%) Fund Bu you t As ia/p acific (5.20) x (12.89%) 1.66% All 1, (800.75) x 10.60% 11.47% 14

16 ABOUT US PEVARA ( Pevara, a division of alternative investments software provider efront, is a private equity portfolio analysis solution incorporating reliable private equity benchmarks and advanced analytics. It enables investors to monitor their portfolio s performance, benchmark fund investments and evaluate new investment opportunities. efront is a leading software provider of end-to-end solutions dedicated to the financial industry, with recognised expertise in alternative investments and risk management. Pevara s data is obtained from actual LP cash flows as opposed to surveys or relying on the Freedom of Information Act to source data. LPs who wish to contribute data to the Pevara Private Equity Index can do so by sending an to data@pevara.com, after which a Pevara data specialist will discuss the process with them. INSEAD GLOBAL PRIVATE EQUITY INITIATIVE ( The Global Private Equity Initiative (GPEI) drives teaching, research and events in the field of private equity and related alternative investments at INSEAD, a world-leading business school. It was launched in 2009 to combine the rigour and reach of the school s research capabilities with the talents of global professionals in the private equity industry. The GPEI aims to enhance the productivity of the capital deployed in this asset class and to facilitate the exchange of ideas and best practice. INSEAD's global presence with campuses in France, Singapore and the UAE offers a unique advantage in conducting research into established markets for private equity, while at the same time exploring new frontiers in emerging markets to arrive at a truly global perspective on this asset class. The GPEI also focuses attention on newer areas shaping the industry such as impact investing, growth equity, infrastructure PE, and specific groups of LPs like family offices and sovereign wealth funds. The GPEI looks to partner with stakeholders in the private equity industry to collaborate on research ideas and projects. Its core supporters are: This report is authored by Michael Prahl, Executive Director and Head of Research at the GPEI, and Siddharth Poddar, Research Associate, under the supervision of Claudia Zeisberger, Academic Director of the GPEI, Professor of Decision Sciences and Entrepreneurship and Family Enterprises at INSEAD. We thank Rishi Kotecha from Pevara and Hazel Hamelin, senior editor at INSEAD, for their invaluable support. 15