Liquid Private Equity Surges in 2013, According to the Red Rocks Capital Global Listed Private Equity Index

Index rises on a robust market for deal exits; key global themes to drive 2014 performance

GOLDEN, Colo.--()--Fueled by strong returns and a vigorous market for deal exits, liquid private equity rose 39 percent in 2013, as measured by the Red Rocks Capital Global Listed Private Equity Index (GLPE), outpacing major market indices and other alternative investments.

The GLPE Index is the largest, most widely followed private equity index, with more than $500 million in Exchange-Traded Fund (ETF) tracking assets, and was the first investable U.S.-based index to monitor global listed private equity companies. With its global scope, GLPE puts an emphasis on direct private equity investing, overweighting direct investment vehicles and underweighting less direct investments such as business development companies and asset managers.

“It was a very good year for liquid private equity, and the outlook remains positive heading into 2014,” said Adam Goldman, Managing Director and co-founder of Red Rocks Capital, LLC, the nation’s leading asset management firm specializing in listed private equity.

“Private equity is the largest alternative asset class on a global basis, with over $3.3 trillion in assets under management, and increasingly advisors and their clients are looking for ways to allocate to this asset class. While institutions and accredited investors have used private equity for decades as part of portfolio allocation, it is now mainstream and available to average investors through mutual funds and ETFs.”

The attached chart depicts five-year cumulative returns for the Red Rocks Capital Global Listed Private Equity Index and other broad benchmark and popular alternative investment indices, including the S&P 500 Total Return Index, Credit Suisse Managed Futures Liquid Index, MSCI World Index, FTSE EPRA/NAREIT Global Real Estate Index, DJUBS Commodities TR Index and HFRX Global Hedge Fund Index. Annualized returns are shown in the chart below.

Annualized Returns     1 Year     3 Year     5 Year
Global Listed Private Equity Index 39.10% 13.70% 23.42%
S&P 500 Total Return Index 32.39% 16.16% 17.93%
Credit Suisse Managed Futures Liquid Index 7.49% -1.99% -0.05%
MSCI World Index 27.49% 12.25% 15.81%
FTSE EPRA/NAREIT Global Real Estate Index 2.24% 6.83% 15.62%
DJUBS Commodities TR Index -9.52% -8.10% 1.51%
HFRX Global Hedge Fund Index 6.55% 0.17% 3.70%
*Past performance does not guarantee future results
Bloomberg data from 12/31/2008 - 12/31/2013
 

2013: No Major Drama = Steadily Rising Values

The past year was excellent for liquid private equity, characterized by strong returns across the asset class and a robust market for deal exits. Some trends that drove strong growth in 2013:

  • A flood of IPOs: Managers took advantage of rising equity market values and an improving market for initial public offerings to sell off many assets at strong multiples to invested capital. This resulted in numerous private equity-backed IPOs in 2013, including Hilton Hotels, Seaworld, and Sprouts Farmers Markets.
  • Exceptional performance for US Private Equity managers: Capitalizing on an improved US economy, private equity managers set records both raising new funds and returning capital to shareholders. Management fees and carried interest earned resulted in rapid earnings growth for companies like The Blackstone Group, KKR & Co, and Apollo Global Management. All 3 of these firms were top 5 contributors to performance for the Red Rocks Global Listed Private Equity Index.
  • Recovery in Europe: Stabilization across the Eurozone, coupled with rising equity market values, resulted in strong performance for European Private Equity firms. The best performing European IPO of the year was the debut of luxury skiwear retailer Moncler backed by French private equity firm Eurazeo. Eurazeo and UK private equity management firm 3i Group were also top 5 performers in the Red Rocks GLPE index in 2013.

Outlook for 2014: Three Key Private Equity Investment Themes

The outlook for private equity remains positive heading into 2014. Growth in existing private equity holdings could be driven by continued economic improvements in developed markets like the US and Europe, while dry powder will likely be deployed in select high-growth regions, market segments, and industries. A few key investment themes going forward include:

  • Increased Mergers and Acquisitions: A recent KPMG survey of more than 1,000 mergers and acquisitions professionals found that 63 percent plan to be acquirers in the year ahead. The reasons for increased acquisition activity include an improved economy, less economic uncertainty, and pent-up demand, along with large cash reserves.
  • Opportunities in Africa and other emerging markets: Many view sub-Saharan Africa as one of the most promising regional investment opportunities in the world, citing a rapidly growing middle class and favorable demographic trends. Africa-focused private equity funds are becoming more common as private equity managers look to focus on this high-growth region. With six of the world’s ten fastest growing economies, Africa provides a compelling market for private equity.
  • Trends in the Oil & Gas Industry: Private equity firms will continue their focus on the North American oil and gas sector, according to a recent Ernst & Young (EY) survey. A total of 77% of survey respondents expect to see increased PE interest in North American oil and gas, while 49% are currently active in the region. New PE investors will look to capitalize on the growth of unconventional resources in the US, specifically the burgeoning shale gas and oil industry. This sector has become so significant that many North American private equity firms are raising oil and gas specific funds, a rare phenomenon in the industry.

“The outlook for private equity continues to be positive, as investors have adapted quite well to the current state of affairs around the globe,” said Goldman. “This is no easy feat, but it is something private equity is good at over the long run.”

About the Red Rocks Capital Global Listed Private Equity Index (GLPE)

The GLPE Index is the largest, most widely followed private equity index, with more than $500 million in ETF tracking assets, and was the first U.S.-based investable index to monitor global listed private equity companies. With its global scope, GLPE puts an emphasis on direct private equity investing. The GLPE Index is designed to track the performance of private equity firms which are publicly traded on any nationally recognized exchange worldwide. These companies invest in, lend capital to, or provide services to privately-held businesses. The Index is comprised of 40 to 75 public companies representing a means of diversified exposure to private equity firms. The securities of the Index are selected and rebalanced quarterly per modified market capitalization weights.

About Red Rocks Capital, LLC

Red Rocks Capital is an asset management firm specializing in listed private equity securities. The Red Rocks Listed Private Equity portfolio gives investors access to an asset class that has historically had high barriers to entry due to investor qualification, long lock-up periods, and high initial investment minimums. Established in 2003 by Founders and Co-Portfolio Managers, Adam Goldman and Mark Sunderhuse, Golden, CO-based Red Rocks Capital was one of the first companies to offer access to private equity through a liquid mutual fund structure. It is currently the largest asset management firm that is focused exclusively on listed private equity, with approximately $1.2 billion in assets for advisor-sold mutual funds and variable annuities for institutions and investors. For more information, visit the firm’s website, www.redrockscapital.com, or call 303.679.8252.

Contacts

For Red Rocks Capital
Mo Shafroth, 720-470-3653
mshafroth@peppercomm.com

5-year cumulative returns of Red Rocks Capital Global Listed Private Equity Index and other broad benchmark and alternative investment indices (Graphic: Business Wire)

5-year cumulative returns of Red Rocks Capital Global Listed Private Equity Index and other broad benchmark and alternative investment indices (Graphic: Business Wire)

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Contacts

For Red Rocks Capital
Mo Shafroth, 720-470-3653
mshafroth@peppercomm.com