October 30, 2019
Private Equity: The Long & Winding Road to Winding Down
Most limited partners are well aware that PE funds are quick to make capital calls, but much slower to pull the trigger on distributions. This Pitchbook article does a deep dive into PE cash management practices & makes some interesting observations about distributions to LPs. Here’s an excerpt:
Most funds take 12 years or more to fully liquidate. The industry is veering toward long-dated funds, some expressly intended to take 20 years or more to liquidate. The reality for “standard” funds is that many of them take almost as long to completely wind down. Many cases likely involve straggler investments and not the lion’s share of a fund’s portfolio, which may be sold off well within a 5 to 7-year time frame.
In fact, our data shows some sunny results, with about half of all PE funds making their first distributions by the 1.5-year mark. Another 25% make their first distributions by the 2.5-year mark, while 10% of funds need 3.5 years before wiring money back to their LPs.
One of Pitchbook’s conclusions is that better GPs often have quicker than average exits – since these folks make good investments in the first place, it’s easier for them to exit quickly. Not surprisingly, the article also says that smaller funds are quicker to liquidate much more quickly than larger funds. It also says that capital calls are cyclical, while distributions tend to be counter-cyclical. That apparently reflects the fact that post-recessionary funds are slower to invest & quicker to exit than their boom-era counterparts.
– John Jenkins