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Changing Timeframes: Private Equity Funds Expand in Lifecycle

A new report, Going the Distance: The Expanding Lifecycles of Private Equity Funds by Pepper Hamilton and Mergermarket, shows that while it is taking longer for managers to deploy capital, the entire lifecycle of PE funds also appears to be lengthening. Managers are seeing longer fundraising periods, sourcing periods for creating and generating viable deals, and holding periods for investments. This longer lifecycle can also be attributed, in part, to the very competitive market for investors’ dollars.

For general partners, the time spent raising money from investors has increased, although the amount of capital being raised has remained stable or only slightly grown. According to the survey, while private equity firms took 6-18 months to complete their latest fundraising, a majority found themselves in the 9-18 month category.

As one private equity partner said, “Previously, finding opportunities with aligned interests was possible. But over the years, changes in the marketplace, demand from investors and regulatory pressures have changed, which has resulted in a longer fundraising period.”

Besides a change in the fundraising period, private equity partners have indicated that the timeline between investment and disposition has increased, taking 6-7+ years for most. Fund terms have followed in this same trend, with liquidated fund lifecycles taking up to 11-12+ years.

Overall, the primary reason for longer private equity fund lifecycle stems from market volatility, which has created a poor exit environment. With less-stable markets, investors have become more cautious in buying new companies, and general partners are forced to hold for longer in order to reach their return hurdles. The absence of earning growth has also made it difficult to sell companies and find new deals.

Key findings of this report include:

  • More than half (58 percent) of respondents say the PE fundraising period for the current fund was longer than the preceding one, with 16 percent describing it as having increased significantly.
  • 56 percent of respondents say that the timeframe from investment to disposition has increased over the past five years, translating to limited partners’ called capital being illiquid for longer and unavailable for general partners.
  • 52 percent of those surveyed expect the timeframe from investment to disposition to remain the same, with equal proportions (16 percent) saying that it will increase and decrease somewhat. This suggests that, for the most part, U.S. private equity executives believe the time needed to invest in and divest an asset has plateaued.

Furthermore, this survey also contains information on which sectors are most time-consuming for deal lifecycles, as well as a dry powder analysis of the private equity industry, an overview on risks, return outlooks, and more.

Download the report here

Compliments of Pepper Hamilton – a member of the EACCNY