Venture, PE Returns Rise In Third Quarter And Continue Rebound

Venture capital and private equity returns lagged behind public market gains in the third quarter of 2010, but both saw improving results, Cambridge Associates said Wednesday.

Stronger exit markets for IPOs and portfolio acquisitions were the cause.

Private equity returns for the quarter were 5.1%, bringing the first nine months of 2010 to 11.4%. Venture funds eked out a 1.6% rise in the quarter and a 4.8% gain for the nine-month period ended September, Cambridge said.

Both asset classes now have six consecutive quarters of positive results under their belts; this marked an improvement from the second quarter. In the second quarter, private equity returns were 3.7% and for venture, 0.4 percent.

In venture, portfolio company valuations rose for the fifth quarter in a row. Software was the best performing of the top three industry sectors (the other two are health care and IT) with a 7.7% return, Cambridge said. Information technology had been the top performing sector for the previous three quarters and came in second, earning 7.3 percent.

In PE, capital distributions by the end of the third quarter were triple all of 2009. LPs contributed more than $20 billion, a 5.2% increase, and received distributions of about $16.7 billion. That was a 28% increase over the second quarter and the highest level of capital distributions in three years, according to Cambridge.