CDC invests over the long term. Each fund commitment may take over five years before it generates a positive return and its eventual financial outcome will not be known for at least ten years. Equity investments are also made with a long-term horizon in mind and final returns are uncertain until a liquidity event, again after 5 to 10 years or even longer. Between investment and realisation, performance and book valuations can be highly volatile. Debt and credit lines are more predictable and are tracked over their life according to meeting pre-determined performance covenants, plus interest and debt repayments.
Moreover, valuing CDC’s portfolio, with its 1,200+ underlying mostly privately-held investee companies, located in regions with very thin and volatile public equity markets is challenging. A rigorous, semi-annual exercise is undertaken to value every single holding, either by CDC alone or in conjunction with the responsible fund manager. Agreed guidelines - the International Private Equity and Venture Capital Valuation Guidelines - are followed. Nevertheless, history shows that annual performance is volatile often driven by the underlying movements of the stock markets in the countries where CDC invests and is not a good guide to long term financial performance.
CDC measures itself and the performance of its team according to average profits over a ten-year period, which is sufficient to iron out the inevitable short term volatility and provide a genuine guide to financial returns generated across the portfolio.
However, we do report annual results, as well as average portfolio returns over a ten year period.
Portfolio return %
As this table indicates, the years 2004 - 2007 saw huge growth in emerging markets, with consequent effects on our portfolio returns. Conversely, the financial crisis of 2008 resulted in a significant dip in performance.
The overall result is a total return after tax of £223.4m (2011: £72.0m loss). As a return on opening total net assets on a valuation basis, this represents a profit for CDC’s shareholder of 9% (2011: 3% loss) this year and an average annual return of 1% over the last five years.
The portfolio generated £250.6m of profit (2011: £66.3m of losses) driven by the rise in global markets.
Find out more
CDC Annual Report and Accounts 2012 (PDF)