Emerging market PE beats listed stocks

Private equity and venture capital funds focused on emerging markets outperformed listed EM stocks in the fourth quarter and last year, according to investment consultancy Cambridge Associates*.

The Cambridge Associates LLC Emerging Markets Private Equity and Venture Capital Index gained 7.3% in the fourth quarter of last year and 13.6% in 2013. The MSCI Emerging Markets index rose 1.9% in the quarter but fell 2.3% during the year.

China accounted for 37% of the Cambridge EM index last year, and Chinese portfolio companies were the best performing in the benchmark, returning 16% in the fourth quarter and 31.6% for the year. 

Three countries – China, India and South Korea – accounted for most of the index's value last year. India was the only one of the three to post a negative return (-2%) for the year.

Ex-US developed market funds were also strong performers last year, rising by 6.5% in Q4 and 16.3% last year. Cambridge attributed these gains partly to the euro strengthening in the last four months. 

As for vintages, six years in the EM index were big enough to be significantly sized, accounting for at least 5.0% of the index: 2005-2008, 2010 and 2011. All had positive returns for both Q4 and 2013, and with the exception of the funds raised in 2005, all had annual returns in double digits.

The top performers were the 2011 funds for the quarter and the 2008 funds for the year, rising 12.0% and 19.2%, respectively, over those periods.

In terms of sectors in the EM index, IT performed best in Q4 with a 17.1% rise, and healthcare came top for the year with an annual return of 51%.

* Cambridge Associates compiles its indexes from around 5,400 private partnerships and their 68,000 portfolio company investments.