In an earlier post, we discussed how the cyclicality of the PE industry was coming to bear, as the momentum and speed with which more recent fund vintages could return money to investors had slowed. The counterpart to the DPI multiples illustrating that trend—RVPI multiples—exemplify the corresponding phenomenon of just how much value is still left to be realized.
Vintages from 2007 to 2009 still have median RVPI multiples exceeding 0.50x, even though it has been just shy of a decade since the eldest of those funds closed. Granted, the delaying factor of the recession contributed in no small part—which limited and general partners all consider—but what’s more important now is to assess the paths toward eventual liquidity for investors.
The exit market had a slow start to 2017, slower even than a lag in data collection could potentially explain. Moreover, even if it's still a seller's market, judging by current transaction multiples and anecdotal evidence, the sheer prolongation of that cycle and its typical progression suggest sales are likely to slow.
But time decay is on no one’s side. Hence, a determined focus on exiting best-positioned assets will characterize the PE-backed exit market as it proceeds into its later innings. Against that backdrop, the realization of gains still locked in portfolio companies looks to occur at a more languid pace, at best, going forward.
Significant realization can still be achievable, as seen by the vintages with liquidity trends most impacted by the financial crisis—i.e., 2005 and 2006—still being able to eke out further conversion of residual value to distributions.