State Street’s GX Private Equity Index Drops in Q3 for the First Time in Three Years, Marking End to Unprecedented Streak of Quarterly Gains

State Street Corporation today announced the results of its GX Private Equity IndexSM (PEI), a benchmark for comparative analysis of private equity performance, which includes a comprehensive data set dating back two decades. In the third quarter of 2015, the index saw an overall return of -1.37 percent.

“The third quarter marks an abrupt end to an uninterrupted, 12-quarter streak of positive returns, the longest winning streak in the 20-year history of our Index,” said Will Kinlaw, senior vice president of State Street Global Exchange. “With growing uncertainty about the global economy and a big spike in public capital market volatility over the past six months, it’s no surprise that the private equity market is taking a pause.”

The Index is based on directly sourced limited partnership data and represents more than $2.3 trillion in private equity investments, with 2,462 unique private equity partnerships, as of September 30, 2015.

“There has been a spike in exit activity over the past several years, with private equity managers returning capital to investors faster than they are calling it,” said Kinlaw. “This has been the trend for 16 quarters, and while it did not reverse in Q3, it has slowed sharply. Managers are being a lot more selective.”

Additional third quarter highlights include:

• The Q3 number represents the biggest decline in the headline Index since Q3 2011. There have only been 10 quarters in its history where the index has posted larger declines, including: Q3 1998 at the time of the Russian debt default, Q4 2000 as the dot-com bubble imploded, Q3 2008 through Q1 2009 during the global financial crisis, and Q3 2011 when the Index dropped by 5.1% amid fears of a Eurozone crisis.

• Total realized proceeds from exits declined in the second half of 2015, dropping by nearly 17.8% in Q3 and by a further 16.4% in Q4 2015. All three major private equity strategies, Buyout, Venture Capital and Private Debt, posted negative quarterly returns in Q3: -1.63%, -0.51% and -1.27%, respectively.

• Among sub-strategies within Buyout, Mega and Large Buyout recorded -1.94%, while Mid and Small Buyout only dropped by 0.11%.

• Private equity funds outside of the US and Europe, primarily made up of emerging market funds, had a volatile quarter: performance dropped from 4.47% in Q2 to -3.13% in Q3 2015. European-focused private equity funds recorded a return of 0.29% in the third quarter, benefiting from a tailwind in the Euro to US Dollar exchange rate. Private equity funds in the US posted -1.43% and -1.25% quarterly return, respectively.

• Soon-to-be-published research by State Street of more than 100 institutional investors globally finds that a majority expect their allocations to private equity to increase over the next five years. The complete research report will be released later this quarter.