Toomey: Longer PE Holding Periods Will Delay Realizations
John Toomey · Mario Giannini & John Toomey – Private Equity Panel (Capital Allocators EP.309) · Apr 17, 2023 · at 15:27
John Toomey (HarbourVest Partners) discusses with Ted Seides and Mario Giannini how higher rates and covenant-lite debt affect exit timing for private equity buyout funds.
0:00 / 0:48exact quote · 48.0s
720p mp4 · rendered on demand · StarZero watermark
“I think you'll see an elongation of the holding period. So when you look back and you saw what happened, again, it's not the same as the global financial crisis, but there's some lessons learned there. I think when managers are sitting on investments that are one and a half times four or five years in, They look at that and say, you know, I just don't know that that's an acceptable return, so I'm going to hold on for a little bit longer. Most of this debt has no covenants. I mean, it's a beautiful thing for the equity owners, but I think what you'll see is you'll see duration gap out a bit further, and so as a result, again, another stress, another pressure in the market is institutional investors aren't getting the realizations that all their models are built off of and we've become used to. It'll put a little bit more pressure on fundraising for new funds.”
quote is from the automated transcript, cleaned for reading: filler sounds and stutters are removed, nothing is rephrased. names can be misheard (the analysis reads context, assessments check outside sources). how →
More from John Toomey
Toomey: Private Equity Could Expand Two to Three Times and Stay Healthy
“I think this industry could be two, three times the size than it is today, and still be healthy and functioning and lots of flows of capital.”
Toomey: Private Capital Markets Are Undergoing a Historic Structural Transformation
“We are witnessing the creation of a private capital markets, kind of not dissimilar to what we saw a 150 years ago underneath the old oak tree or whatever tree it was down at the corner of wall and broad.”
Toomey: Broad Buyout Valuations Declined Only 5% in 2022
“And frankly, we didn't see that underlying in company performance continue to be strong even in the second half of the year. And we saw, I'd say, low single digit declines even at year end. For the broad buyout market, probably plus or minus five percent.”
Toomey: Crossover and Mutual Fund Tech Managers Saw 25% Valuation Drops
“And I think certain managers, particularly the crossover investors, the mutual fund investors that publish their company valuations every quarter now, they really invested into that and took those valuations up to full value. That's where we saw the greatest d…”
Toomey: PE Managers Are Fully Equitizing Deals to Refinance Later
“We've seen managers essentially fully equitize their companies today. With the view that they're just going to refinance out in a better market instead of taking it as much or at the same level of debt that they've used.”
Toomey: Venture and Asia require more diversification than North American buyout
“You probably should have more diversification in venture in Asia than you do in the North American buyout market because the dispersion of returns that our QIS team has shown over the 40 years of data that we have says you do want to grab some of that right ha…”