The average holding period for private equity-backed portfolio companies increased year on year between 2008 and 2012, according to research carried out by Preqin.
Mega deals (over USD1bn) exited so far in 2013 had an average holding period of 6.2 years, up from just 2.1 years in 2008.
Increased average holding periods have impacted the amount of capital distributed back to investors. After six years, 2001 vintage buyout funds had distributed 95 per cent of paid-in capital to investors, compared to just 33 per cent of paid-in capital after six years for vintage 2007 buyout funds.
A significant 63 per cent of portfolio companies purchased in 2006 and 73 per cent 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.
The aggregate value of exits dropped to just USD5.2bn in Q1 2009, but has been on an upward trend since, reaching a high of USD126bn in Q2 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 USD91bn in capital commitments, compared to USD79bn and USD77bn raised by buyout funds closed in 2011 and 2010 respectively.
Investors continue to favour buyout funds. Fifty one per cent of LPs looking to make new commitments in 2013 plan to target small to mid-market buyout funds and 23 per cent expect to commit to large or mega buyout vehicles.
“With buyout fund managers now holding portfolio companies for a year longer on average than before the financial crisis, exit conditions clearly remain difficult,” says Ignatius Fogarty, head of private equity products, Preqin. “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. 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.”
