Median PE Fund Life Declines for the First Time Since 2007

Based on a Palico analysis of funds dissolved in 2015 across all sectors and regions, the lifespan of the median private equity fund stands at 12.9 years. That’s down from 2014’s record of 13.2 years. It’s also the first annual decline since 2007, when median fund life hit 11.3 years, down from 11.5 years the previous year.

PE FUND LIFE IN YEARS*

*Data is based on an analysis of 200 private equity funds dissolved in 2015. Partial years are rounded to the nearest whole year. Source: Palico

Failure to Return Capital within 10 Years is a Long-Term Problem

The longevity of private equity funds has ebbed and flowed over time, but the past decade has mostly been a period where PE managers struggled to wind down investment funds within the 10 years typically targeted. Although a significantly larger proportion of managers are now liquidating their funds and returning investor capital within 10 years – some 14 percent in 2015 versus 12 percent the previous year – most managers continue to miss the deadline. Three calendar years of exceptionally high asset prices and consecutive records in investment exits chipped away at the lengthening hold periods for investments ushered in by the 2000 dot-com bubble and the 2008 financial crisis. But relatively high valuations since 2010 have also considerably slowed capital deployment, diluting the robust exit market’s impact on fund life.

One Big Challenge will be Deploying Capital Rapidly

Reeling energy and commodity prices, a depressed euro, volatile stock markets and investor expectations of higher U.S. interest rates imply prices for PE targets will fall in 2016, making deployment easier. But price drops are likely to be limited, even in the event of significant stock market declines. Today’s mass of “dry powder” – some $1.3 trillion in uninvested capital is held in classic fund structures – should keep competition for assets intense, deployment pace relatively slow and any long-term shortening of fund life modest.

The Implications of Longer Fund Life

The likelihood that the typical private equity vehicle will continue to hold assets well past the targeted liquidation date – negatively impacting annual returns – implies even greater fund diversity, with investors supporting specialists in particular industries and niches on the theory that expertise and less crowded sectors will yield better value and quicker investment realizations. Another key implication of longer fund life is a bigger secondary market, with growing numbers of investors actively managing returns and liquidity by selling, as well as buying, long-in-the-tooth funds.

Palico Can Ease the Complexities of the PE Marketplace for Investors and Managers

Today’s increasingly diverse marketplace – a record 2,720 private equity funds are raising capital across the globe – can swamp investor resources as well as make it difficult for good fund managers to stand out. By bringing private equity opportunities to desktops and smart devices, Palico makes the process of identifying, vetting and contacting the best potential partners easier.


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