Laurence Allen Expects Investors to Lock-In Record Unrealized Value in Private Equity Funds

Unrealized value in private equity funds was at record levels as of December 31, 2021 exceeding $8.5 trillion worldwide as estimated by our analysts, states Laurence Allen. For perspective, this level is more than 102% higher than an estimated $4.2 trillion just 3 years ago as of December 31, 2018.

In the first half of 2022, when you consider the following exit estimates: (1) IPO exits comprised less than 1% of total exit volume from private equity funds worldwide, (2) SPAC M&A exit volume declined 87%+ year over year and (3) over 60% of exits were GP to GP transactions (a game of musical chairs), I believe both LPs and GPs are at risk of significant write-downs of unrealized value ahead.

The obvious portfolio strategy now is to lock-in unrealized value through sales in the secondary market. In particular, while bids are generally resilient due to record dry powder with secondary investors, estimated by Laurence Allen to be over $140 billion as of December 31, 2021 (exceptions include venture funds, overleveraged funds in real estate, secondaries etc.).

This portfolio rebalancing strategy could also help offset a potential significant decline in distributions, which I expect ahead given current exit trends in private equity funds worldwide.

This is the 3rd of a 5 Part Series of Private Equity Market Commentaries from the first half of 2022.

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Disclosure: This information is market commentary by Laurence Allen and not a solicitation of private securities transactions which may only be done through private offering documents and in jurisdictions where permitted. Investors should not rely on the information in this commentary as the basis for making investment decisions. This commentary is provided for informational purposes only. You are strongly encouraged to consult with your own independent advisors regarding any issues discussed in this commentary.

Private placements are illiquid, speculative and investors may lose their entire investment.