A new report from eFront, the leading financial software and solutions provider dedicated to Alternative Investments, shows that private equity holding periods extended in 2020 to a record 5.4 years on average, at the same time as returns dipped.
The data also showed that investments held for longer periods tend to produce higher returns – though this was not the case in 2020. Holding periods in private equity have increased significantly since 2010, rising from an average of 3.8 years to 5.4 years. Returns generally rise as holding periods increase, with companies held for less than two years on average delivering less than a 2x multiple on invested capital (MoIC) gross of fees.
The average MoIC increases with a holding period of up to five years and then it stabilises around 2.5x, before reaching a maximum value of above 2.6x for deals held between 9 and 10 years. Potentially as a result of the pandemic, private equity-backed companies sold during 2020 were held longer in portfolios relative to the historical average.
While average MoIC for investments exited in 2020 fell across most industry sectors, this was not true of IT deals, which achieved an average MoIC of 4x, or Telecom deals, with an average MoIC of 3.5x.
Read more/Source: Private Equity Wire
