The average holding period for private equity-backed portfolio companies has increased year on year between 2008 and 2012, which has impacted the amount of capital distributed back to investors, according to a recent Preqin report.
Mega deals (over US$1 billion) exited so far in 2013 had an average holding period of 6.2 years, up from just 2.1 years in 2008, the Preqin report reveals.
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According to the report, after six years, 2001 vintage buyout funds had distributed 95% of paid-in capital to investors, compared to just 33% of paid-in capital after six years for vintage 2007 buyout funds.
The report says that a significant 63% of portfolio companies purchased in 2006 and 73% purchased in 2007 have yet to be sold, as fund managers have struggled to exit companies purchased during the buyout boom.
The average holding period for deals exited so far in 2013 has dropped slightly to 4.9 years. European portfolio companies have the longest average holding period at 5.2 years for deals exited so far in 2013, compared to 4.8 years for North American portfolio companies, Preqin report added.
Prequin said, "With buyout fund managers now holding portfolio companies for a year longer on average than before the financial
crisis, exit conditions clearly remain difficult. Fund managers are still struggling to sell investments for a sufficient profit that were purchased at peak prices during the buyout boom, and consequently are holding portfolio companies for longer."
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By GlobalDataThe aggregate value of exits dropped to just US$5.2 billion in first quarter of 2009, but has been on an upward trend since, reaching a high of US$126 billion in the second quarter of 2011.
Distributions to investors exceeded contributions for the first time in 2011 since 2005, with fund managers keen to return capital to investors.
Buyout funds closed in 2012 secured an aggregate US$91 billion in capital commitments, compared to US$79 billion and US$77 billion raised by buyout funds closed in 2011 and 2010 respectively, the report revealed.
The report says that investors continue to favour buyout funds. Approximately 51% of LPs looking to make new commitments in 2013 plan to target small to mid-market buyout funds, and 23% expect to commit to large or mega buyout vehicles.
According to Prequin, "However, exit activity seems to be on the increase and the fact that distributions have outweighed contributions more recently, means investors are likely to have more capital available to commit to new private equity funds in the near future."
