Three years into a North American economic recovery of slow but steady GDP growth, most investors have not seen this improved economic performance translate into portfolio earnings. Yet despite the headwinds facing public markets, private equity continues to represent an alternative investment strategy that is delivering sustained investor returns.
This wealth creation has translated into strong performance for the Kensington Global Private Equity Fund, which today announced a record distribution of $2.13 per unit, representing a 9.8% payout. After this latest distribution, fund investors will have received a total of $3.69 per unit (16.9%) within the past 12 months. The new distribution exceeds the $1.56 per unit paid in October 2012, reflecting strong growth in the realized gains achieved within the Kensington private equity portfolio. The Kensington Global Private Equity Fund has generated annualized returns of 11% in the three years ending on December 31, 2012 — more than double the S&P/TSX Index’s annualized returns of 4.5% over the same period.
“When we sell an investment at a profit, our policy is to distribute those profits to our investors, while re-investing the original capital,” said Rick Nathan, Managing Director, Kensington Capital. “Today’s announcement represents the distribution of the realized profits that we have generated from the sale of portfolio companies through the past several months.”
The realities of today’s public markets, such as continued volatility driven by external events — from fiscal crises in Europe to political gridlock in Washington — combined with normal gyrations from quarterly earnings expectations and high frequency trading, have gradually separated the stock market index from the economic cycle. And as public markets finally edge back to pre-downturn levels, public market investors must face the discouraging fact that recent stock market gains — while encouraging — have merely returned market values to where they were five years ago.
“Over the past several years, traditional portfolios of stocks and bonds have largely failed in their core mission to create wealth, generate income, and secure long-term retirement savings, while the private equity market has been providing investors with a reliable avenue to participate in the steady economic growth that surrounds us,” said Mr. Nathan. “Private equity represents an investment in the real economy, where wealth creation is based on real measures such as earnings growth and profitability, and the abilities of private equity managers to translate these measures into tangible gains for investors.”
Canada’s largest institutional investors, which require steady long-term portfolio gains to fund their pension obligations, have also participated in the growth of private equity markets and are continuing to allocate more and more capital to the sector. In particular, the Canada Pension Plan Investment Board held 17.1% of its total assets in private equity investments as of December 31, 2012, while OMERS increased its private market investments (consisting of private equity, real estate and infrastructure) to 40% during the 2012 period. Globally, according to Preqin’s Investor Outlook, a strong majority (85%) of large international investors stated that their private equity portfolio returns met or exceeded expectations in 2012, and almost a third (27%) expect to increase their level of exposure to private equity in 2013.
Investment in private markets remains promising, with private equity activity continuing an upward trajectory. Canada’s Venture Capital & Private Equity Association (CVCA) and Thomson Reuters last week released a joint report showing that the 2012 private equity market saw the highest deal volume on record. According to the report, disclosed Canadian buyout and private equity disbursements totaled $11.6 billion in 2012, marking the highest level of dollars invested in the Canadian market since 2008. Private equity transactions totaled 313, up 4% from 2011 and establishing a new market record.
The Kensington Fund invests in a diversified portfolio of private companies and funds, typically holding each underlying company for a period of three to five years before selling to a larger corporation or into the public markets through an IPO. Kensington is best known for its private equity investment programs, having committed over $600 million since 2002, and is also an active investor in infrastructure assets and hedge funds. The firm was founded in 1996 and is based in Toronto (www.kcpl.ca).
© 2013 PEPD • Private Equity’s Leading News Magazine • 2-28-13
