THIRD QUARTER 2009

During the third quarter, market activity in most segments of the private capital markets continued at a increasing but muted pace – the exception being distressed investing.  Distressed trading continued at record pace and corporate credits rebounded strongly year-to-date and in the 3^rd quarter.  Abundant opportunities remain.  Despite the muted pace, venture and buyout funds posted positive performance for the quarter ended June 30^th (the most recent data available), participating to some degree in the public market rebound.   Through this down cycle, private investments outperformed public markets. 

Timber and real estate posted negative returns for the June quarter due to declining net cash flow and lower land value prices.  Real estate experienced further declines in the 3^rd quarter while timber eked out a small positive total return.  The slide in real estate values, as measured by the NCREIF core property index, slowed modestly.  Interestingly, the related MIT real estate transaction based index posted a positive quarter over quarter comparison. While on limited volume, this increase bodes well for real estate values and may be a reflection on the amount of uninvested capital on the sidelines.  Further commentary on activity and performance in all sectors follows. 

This quarter our Focus Topic highlights the recent publication of what hopes to become a “best practices” standard for the terms and conditions of limited partnership agreements.   The Institutional Limited Partners’ Association (ILPA) published these standards during a period of unprecedented decline in fundraising activity for private partnerships.  Now is an opportune time to review alignment of interests between fund managers and investors.