Private equity sponsors expecting 25 per cent drop in value of portfolio investments in Q1, says Gen II survey

Approximately 80 per cent of private equity sponsors believe there could be up to a 25 per cent reduction in the value of portfolio investments in their Q1 valuations, according to a new survey by Gen II Fund Services.

The survey also shows there is still a high degree of uncertainty regarding the long-term effects of COVID-19 on investments and as a result, traditional methodologies for valuing portfolio investments are less reliable. For Q1, sponsors are considering a combination of approaches, including public company comparables, third party valuation services, and adjustments to previously applied valuation methodology.

"The survey gives our clients important insights into how PE sponsors are thinking about valuations under these unprecedented circumstances," says Co-Founder and Managing Principal, Steven Millner. Norman Leben, Co-Founder and Managing Principal added, "Our clients view us as their trusted advisors, in line with our role, it is important for us to understand and share industry trends and perceptions as they are occurring."

Gen II surveyed over 150 of its clients from 8 April, 2020 through April 24, 2020. Respondents are principally invested in buy-out, real estate, energy/infrastructure, credit, and fund of funds. Below are additional highlights from the study. 
 
For recently acquired portfolio investments, close to 70 per cent of respondents will be holding investments made within the last 12 months at cost. Respondents also expect to provide additional capital to up to 25 per cent of their portfolio investments

A total of 80 per cent of respondents will primarily be relying on public market comparables in conjunction with other metrics in their valuation, while approximately 70 per cent of respondents believe that the effects of COVID-19 will not impact their fund economics .

Sponsors meanwhile, generally intend to report the effects of COVID-19 on a quarterly basis to their investors.