Note: When using a KS-PME, a value greater than 1.0 indicates outperformance of the public index (net of all fees). For example, the current 1.30 value for 2005 vintage PE funds means investors in a typical vehicle from that year are 30% better off having invested in PE than if they had invested in public equities over the same period.
There are many factors behind this particular trend, not the least of which is the impact of the financial crisis in areas like prolonged holding periods, as managers have worked to maximize the value of impacted companies. Subsequent record public-market highs also further complicated matters in terms of PE outperformance. And the industry has also grown more competitive, with newer entrants trickling in as more limited partners seek to maintain or increase exposure to the asset class, given the lack of traditional havens for long-term investment in a persistently low-yield environment.
It seems thus far that not a single vintage is close to achieving the heights reached by those from before 2006, and, given fund lifecycles, many won’t.
For more recent vintages, however, is that assuredly the case? 2011, 2012 and 2013 vintages are a marginal measure ahead of public indices’ performance, enjoying mid-term gains from the recent M&A boom. Even if the M&A wave has crested, as expectations around fund lifecycles have extended somewhat in past years, fund managers of vehicles from those vintages may still have some flexibility in terms of time to build even further upon their outperformance.
Plus, especially if public markets eventually begin to diminish from their current highs, PE managers’ traditional edge may come into play once more. Frankly, given the current macroeconomic scene, general partners are likely already positioning for just such an eventuality.
Note: This column was previously published in The Lead Left.
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