Net liquidating equity
Net liquidating equity - who is dionne warwick dating
We show that compared to a public equity buy-and-hold strategy, the terminal value (after self-liquidation) has a much lower volatility whilst generating a significant outperformance despite the presence of cash drag.Therefore, unless a private equity portfolio is clearly expected to perform poorly, or an investor has immediate liquidity needs, there is no reason to sell it on the secondary market.
Figure 1 presents the typical cash flow and NAV evolution of a private equity fund during its life.
If an investor stops committing to new private equity funds then his residual net asset value (NAV) eventually decreases as the underlying investments are exited.
For mature private equity portfolios, the investor’s net cash flow is likely to be positive, indicating that distributions are larger than capital calls.
On average, liquidated private equity funds with vintages between 19 have an internal rate of return (IRR) of 16.7%Figure 1.
Typical cash flow and NAV evolution of a private equity fund (mean NAV and cash flow of buyout funds with vintages between 19 from the Cambridge Associates database as of December 31, 2014).
The risk can be greatly reduced by diversification; for example, investing into five private equity funds per year during five years (total of 25 funds) leads to an i Ca R of 0%.
Some sub-asset classes of private equity are less risky than others.Capital is called during the investment period; at the same time, the net asset value of the fund is growing.In later stages, cash is distributed to the investors.The first 5-6 years correspond to the fund’s investment period, during which the GP can draw down from the capital committed by LPs.Generally, after the investment period, the GP can no longer draw down unused committed capital other than for fees, expenses and follow-on investments.The gain is effective when the sum of all distributions is larger than the called capital.