Archives for June 22, 2012

The presidential election thrust the private equity industry into the spotlight, but often lost in the discourse are the superior returns private equity delivers to public pensions, university endowments and charitable foundations. The Private Equity Growth Capital Council (PEGCC) released a new analysis today, highlighting returns provided by private equity investments compared to the S&P 500. A link to a free copy of the report appears at the end of this article.

The PEGCC research shows private equity outperformed (net of fees) the S&P 500 for 1, 5 and 10-year time horizons by 7.1, 5.7 and 7.6 percentage points, respectively. Private equity underperformed the S&P 500 during the 3-year time horizon due to the index’s historic dip during the financial crisis, which inflated S&P returns during this period.

“Private equity continues to outperform the S&P 500 over both near and long time horizons,” said PEGCC President & CEO, Steve Judge. “The consistent private equity outperformance of public markets is essential for pension funds, university endowments and charitable foundations to achieve their investment goals. Private equity helps provide retirement security to millions, makes college a reality for more students and funds charitable causes,” concluded Mr. Judge.

Private equity investments delivered similar returns (net of fees) to public pensions. PEGCC analysis of recently published data from eight pension funds shows median private equity returns exceeded the S&P 500 for 1, 5, and 10-year time horizons by 9.1, 7.9, and 8.6 percentage points.

“This analysis shows the consistent value private equity investment provides its beneficiaries. During a decade when many public indices barely outpaced inflation, private equity provided the superior returns helping investors meet their financial goals,” said Bronwyn Bailey, PEGCC Vice President of Research.

For a free copy of the latest Private Equity Performance Update click HERE.

In May, the Deloitte Consumer Spending Index posted its first three-month increase since September 2010. The Index tracks consumer cash flow as an indicator of future consumer spending. “The Index’s increase is due to an ongoing slowdown in declining new home prices, plus a small uptick in real wages as falling energy prices give consumers some relief,” explains Carl Steidtmann, Deloitte’s chief economist and author of the monthly Index. “If these two components continue in this direction, consumer spending and sentiment may gain ground. However, the outcome of the stalling job market and economic crises overseas will determine whether it can be sustained.”

Deloitte’s analysis of factors influencing consumer spending indicate:

• Housing prices are currently stable and in many markets are turning up. Should prices remain steady, demand may return. Pending sales of existing homes were down 5.1 percent in April from March, possibly because the unseasonably warm winter improved sales.

• In recent weeks, oil prices fell more than $20 a barrel and gasoline prices will follow, giving consumers more purchasing power. One concern is that falling energy prices can also reflect a weakening economy, like the Fall of 2008.

• Three consecutive monthly employment reports were disappointing. Jobless claims are trending up and layoff announcements are up sharply as well. If the labor market continues to deteriorate, the recent improvement in the Index will quickly reverse.

• After posting significant gains early in the year, auto sales have weakened — even in comparison to a period when sales depressed by lack of supply from Japan. Sales in May fell sharply from April. At 13.78 million units on an annualized basis, sales in May were well below the peak sales rate of 15 million units achieved in February, and it is likely that the May numbers — due out in mid-June — will also be weak.

The Index, which comprises four components — tax burden, initial unemployment claims, real wages and real home prices — rose to 2.96 from an upwardly revised reading of 2.42 the previous month.

“Though confidence is still fragile, the consumer’s mood may improve as they begin to see their housing concerns recede and gas prices fall,” said Alison Paul, vice chairman, Deloitte LLP and retail & distribution sector leader. “Retailers need to capitalize on this timing and step up efforts to clear inventory before the back-to-school season starts. Smart retailers are using consumer insights and advanced analytics to sharpen price points and better predict buying behavior. By doing this, retailers are more likely to move over-inventoried goods while holding margins on the items that shoppers want.”