In the world of private equity, the long-persisting effects of the financial crisis are still evident. This is particularly clear when examining fund returns from certain vintages. Funds from 2007-2009 vintages have plenty of value yet to be realized, as they took longer to build up total value to paid-in multiples.
The sizable disparity between what has been realized between the 2009 and 2010 vintages is attributable to the resumption of a more normal environment, circa 2011 to 2012. What’s interesting to contemplate is how the balance of unrealized value will be recouped into actual gains by PE sponsors looking to sell. Their backers are cognizant of how timelines to liquidity were extended by the effects of the recession.
At the same time, one must acknowledge that there are plenty of more recently acquired assets that could also end up drawing interest from potential buyers. They were healthier businesses to begin with and didn’t take as long to tune up.
The level of demand plays a crucial role, yet PE fund managers can redouble efforts at positioning certain companies for sale sooner. How PE firms will prioritize clearing portfolio companies off their books will be an intriguing trend to monitor going forward.
Note: This column was previously published in The Lead Left.
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Article by Garrett James Black, PitchBook