As to be expected, PE funds of all vintages and geographies see their average DPI multiples climb over time, as managers successfully liquidate (even aging) holdings after years of operational enhancements.
The rates of increase in DPI multiples by vintage, however, can be split into two groups, as depicted in the chart below. Funds with vintage years between 2005 and 2007 have experienced a marginally slower increase in average DPI multiples, while the same metrics for 2004 and post-2007 vintages have risen faster.
The disparity can be attributed to the impact of the global financial crisis, with a typical fund in those vintages consequently taking longer to rebuild portfolios hit hard by economic woes. Despite the DPI split, it’s worth noting that recent vintages rebounded fairly quickly and hard-hit vintages are also inexorably rising, both aided by the wave of exit activity between 2013 and 2015.
Given that PE-backed exits have diminished steadily over the past few quarters, however, future advances in DPI multiples are likely to slow across the board. It will be interesting to see whether the disparity between the groups of vintages persists.
By now, older funds may still have some poorly performing companies left in their portfolios, while newer funds are stocked with relatively youthful acquisitions. Accordingly, it’ll be a tougher prospect for further realization in 2005-2007 vintages going forward, and younger vintages will see their rates of liquidation slow as well.