๐ Private Equity firms reported 1.6% gains for Q1 2022 in a year where global equities lost 22% (FT). NAVs are up!
However at the same time, a record $57bn of PE funds changed hands in H1 2022, at an average price of 86% of the NAV.
So…NAVs are up but ๐๐๐ญ๐ฎ๐๐ฅ ๐ญ๐ซ๐๐๐๐ฌ ๐ก๐๐ฉ๐ฉ๐๐ง ๐๐ญ 14% ๐๐ข๐ฌ๐๐จ๐ฎ๐ง๐ญ. Interesting, isn’t it?
๐ In “๐๐ซ๐ข๐ฏ๐๐ญ๐ ๐๐ช๐ฎ๐ข๐ญ๐ฒ”, there is “๐๐ช๐ฎ๐ข๐ญ๐ฒ”. And there is no reason why the drivers of the repricing of Equity in 2022 should not apply to Private Equity also.
The inflated and abnormally stable PE NAVs is a phenomenon that seems to be in everyone’s interest: Three academics recently argued that PE funds tend to boost interim performance returns to cater for some investors’ demand for manipulated returns. Indeed some investors do not want to see the mark-to-market and are happy to received those manipulated NAVs.
๐According toย AQR Capital Management‘s co-founder Cliff Asness “the amount people will pay to an industry to make decently less than a moderately levered S&P 500 index fund, so they donโt have to watch the S&P 500 index fund, is staggering.. it’s “Volatility Laundering”. In other words, investors pay a premium for illiquidity, or rather a premium for voluntary blindness! In poker you may pay to see, in PE you pay not so see!
๐That obviously all goes well as long as the “๐๐ช๐ฎ๐ข๐ญ๐ฒ” in “๐๐ซ๐ข๐ฏ๐๐ญ๐ ๐๐ช๐ฎ๐ข๐ญ๐ฒ” keeps going up medium to long term, and as long as investors hold to their positions. But if not?
๐ If the S&P was the “S&PE” it would probably look like the below and attract a fair amount of money… including mine!
๐๐ฐ๐ถ๐ณ๐ค๐ฆ๐ด :
“๐๐ฉ๐ฆ ๐ท๐ฐ๐ญ๐ข๐ต๐ช๐ญ๐ช๐ต๐บ ๐ญ๐ข๐ถ๐ฏ๐ฅ๐ฆ๐ณ๐ช๐ฏ๐จ, ๐ณ๐ฆ๐ต๐ถ๐ณ๐ฏ ๐ฎ๐ข๐ฏ๐ช๐ฑ๐ถ๐ญ๐ข๐ต๐ช๐ฐ๐ฏ ๐ข๐ฏ๐ฅ โ๐ฑ๐ฉ๐ฐ๐ฏ๐ฆ๐บ ๐ฉ๐ข๐ฑ๐ฑ๐ช๐ฏ๐ฆ๐ด๐ดโ ๐ฐ๐ง ๐ฑ๐ณ๐ช๐ท๐ข๐ต๐ฆ ๐ฆ๐ฒ๐ถ๐ช๐ต๐บ”ย Robin Wigglesworthย (๐๐ ๐๐ญ๐ฑ๐ฉ๐ข๐ท๐ช๐ญ๐ญ๐ฆ, 2 ๐๐ฐ๐ท๐ฆ๐ฎ๐ฃ๐ฆ๐ณ 2022)
“๐๐ข๐ต๐ฆ๐ณ๐ช๐ฏ๐จ ๐ข๐ฏ๐ฅ ๐๐ฆ๐ต๐ถ๐ณ๐ฏ ๐๐ข๐ฏ๐ช๐ฑ๐ถ๐ญ๐ข๐ต๐ช๐ฐ๐ฏ ๐ช๐ฏ ๐๐ณ๐ช๐ท๐ข๐ต๐ฆ ๐๐ฒ๐ถ๐ช๐ต๐บ” ๐๐ญ๐ข๐ฌ๐ฆ ๐๐ข๐ค๐ฌ๐ด๐ฐ๐ฏ, ๐๐ข๐ท๐ช๐ฅ ๐๐ช๐ฏ๐จ, ๐๐ฏ๐ฅ๐บ ๐๐ข๐ณ๐ข๐ฏ๐ซ๐ฐ (๐๐๐๐ ๐ฑ๐ข๐ฑ๐ฆ๐ณ 15 ๐๐ฆ๐ค๐ฆ๐ฎ๐ฃ๐ฆ๐ณ 2022)
“๐๐ฆ๐ข๐ญ๐ต๐ฉ๐บ ๐๐ฏ๐ท๐ฆ๐ด๐ต๐ฐ๐ณ๐ด ๐๐ช๐ญ๐ฆ ๐๐ฏ๐ต๐ฐ ๐๐ณ๐ช๐ท๐ข๐ต๐ฆ ๐๐ฒ๐ถ๐ช๐ต๐บ ๐ต๐ฐ ๐๐ด๐ค๐ข๐ฑ๐ฆ ๐๐ต๐ฐ๐ค๐ฌ ๐๐ฐ๐ญ๐ข๐ต๐ช๐ญ๐ช๐ต๐บ” ๐๐ฉ๐ณ๐ช๐ด ๐๐ถ๐ฎ๐ฎ๐ช๐ฏ๐จ (๐๐๐ 26 ๐๐ข๐บ 2022)
๐๐ญ๐ช๐ง๐ง๐ฐ๐ณ๐ฅ ๐๐ด๐ฏ๐ฆ๐ด๐ด ๐ฐ๐ฏ ๐๐ธ๐ช๐ต๐ต๐ฆ๐ณ.
