SEATTLE, March 5, 2020 -- PitchBook, the premier data provider for the private and public equity markets, today released fund performance data through 2Q 2019 from its stand-alone performance measurement product, PitchBook Benchmarks. The comprehensive performance data is designed to help limited partners (LPs) and general partners (GPs) better understand private market fund performance relative to broader asset classes and other PE and VC strategies. Analyses of private market performance tend to focus on how the GP generates returns, but the treatment of uncalled capital is also critical when evaluating the total return of a private market allocation. An LP's decision to commit to a fund often comes several years before that capital is ever transferred to the GP to be invested, creating a challenge for LPs who must balance the need to meet capital calls with the desire to maximize return. The first three installments of PitchBook's Basics of Cash Flow Management series focused exclusively on PE funds (primarily buyout and growth vehicles), and the next several installments will expand those initial analyses to compare the cash flow profiles of other private market strategies. In this edition, PitchBook analysts provide targeted analyses of drawdown rates for venture capital, private debt, real assets, funds of funds (FoF) and secondaries.
The PitchBook Benchmarks PDF and Excel data packs are available for download here.
"There are several considerations to account for when assessing the cash flows of private market funds, but we can make some broad generalizations that tend to distinguish the various strategies," said James Gelfer, senior strategist at PitchBook. "Understanding how these funds draw down and deploy capital in isolation is important, but it's only the first step for allocators that have diversified private market portfolios and the next installment in our series will dig into distributions for these strategies."
PitchBook reviewed cash flow data to provide targeted analyses of drawdown rates for venture capital, private debt, real assets, fund of funds and secondaries. Key takeaways include:
- More than 80% of VC funds will call capital during any given quarter in the first three years of the investment period, compared to roughly two-thirds for traditional PE funds. Venture GPs tend to call capital later in their funds' lives, with 6.5% calling at least 1% of the total commitment in Year 10, the highest of any direct investing strategy.
- Private debt vehicles tend to experience the fastest drawdowns of any private capital strategy, calling down more than 60% of their total commitment on average in the first two years, compared to about 50% for real assets and just 37% for PE.
- On average, real assets funds have the second-quickest drawdown rate of any strategy, with over half of committed capital called by Year 2 and over 80% by Year 4.
- FoF have one of the most distinct drawdown profiles of any private market strategy and exhibit a stable pace of capital deployment throughout the investment period with smaller capital calls on average. FoF understandably have taken longer to begin calling capital, but we've seen evidence that FoF are being more efficient in deploying capital as the strategy has matured.
- Secondaries funds fall into the middle of the pack when assessing drawdown rates across private market strategies. The somewhat nascent nature of the secondaries market – underscored by minimal levels of competition and low usage of leverage – is evident in the relatively quick drawdown rates of early vintages.
Check out previous installments of the Cash Flow Series:
Basics of cash flow management: PE contributions
Basics of cash flow management: PE distributions
Basics of cash flow management: Allocation construction
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PitchBook is a financial data and software company that provides transparency into the capital markets to help professionals discover and execute opportunities with confidence and efficiency. PitchBook collects and analyzes detailed data on the entire venture capital, private equity and M&A landscape—including public and private companies, investors, funds, investments, exits and people. The company's data and analysis are available through the PitchBook Platform, industry news and in-depth reports. Founded in 2007, PitchBook has offices in Seattle, San Francisco, New York and London and serves more than 37,000 professionals around the world. In 2016, Morningstar acquired PitchBook, which now operates as an independent subsidiary.