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Bailey McCann, Opalesque New York: New research by Oliver Gottschalg, Associate Professor of Strategy and Business Policy at HEC Paris, predicts a possible shortfall of private equity (PE) net cash flows of 65% in distributions in 2020. This corresponds to an 11.3% drop off in pre-crisis net asset values for the PE sample portfolio. For funds with $5b in private equity assets, for instance, the possible shortfall is projected to amount to $600m by the end of the year.
"Essentially what we expect to see is that there is going to be a slowdown in deal flow for private equity firms as well as a slow down in exits," Gottschalg tells Opalesque. "GPs have the luxury of having a pretty lengthy period in which to do deals. Managing entry and exit points are critical for the success of a fund, so you would expect to see everything take a little longer in a crisis."
The research tracked what happened to private equity firms in other downturns in order to provide a picture of what might be ahead. This data, combined with Gottschalg's forecasting techniques, provides detailed insight into how the current crisis may impact PE distributions and takedowns.
Using data from a sample of 429 PE funds between 1999 and 2008, including information about quarterly cash flows and the quarterly net asset values, Gottschalg has been able to take a snapshot of the actual performance profile of these funds over the nine-year period. Analysis of the data reveals that global financial cris...................... To view our full article Click here
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