Investments made by buyout funds in the era preceding the financial crisis are “still weighing heavily” on PE performance, according to the latest Preqin research. Only a minority of the portfolio companies purchased during the record-breaking period of 2006-2007 have been exited (28% of deals made in 2006 and 19% of those made in 2007) completely.
This means that portfolio companies are being held for longer than the usual 3 to 5 years, said Preqin. Part of the reason for the slow process of divesting is the sheer volume of investment in the years 2006 and 2007, some USD 1,308 billion worth of buyout transactions.
That figure is “significantly higher” than the aggregate value of all buyout transactions made during 2008 to 2012 combined, said Peqin. It highlights the negative impact of sustained financial market turmoil on the ability of GPs to exit investments. The report is not all negative.
Preqin points out that fund managers have made exits whenever good market opportunities have arisen. For example, Q2 2011 alone saw approximately USD 130 billion worth of exits – a record quarter for the industry. (Image source: Preqin)
– 55% of currently held portfolio companies are based in North America. Europe accounts for 32%, and Asia and Rest of World makes up 13% of the number of deals yet to be fully exited.
– North American portfolio companies represent 60% of the aggregate value of currently held deals (by initial value), while 30% of the value is made up by Europe-based deals and 9% by Asia and Rest of World-based companies.
– The smallest proportion of active deals date from 2009, with less than 9% of all current portfolio holdings coming from transactions made during that year, which is due to the relatively small number of deals made in 2009 as a result of the financial crisis.