PE Portfolio Company Holding Periods – Updated
I periodically update the private equity portfolio company holding periods study to track this trend over time. In both March and August 2018, I reported a slight downward trend in portfolio company holding durations. That trend continues with this update, although more steeply downward.
Now accounting for all 2018 exits tracked, the holding period has continued to decline. For 2018 exits, the median holding periods is 4.7 years, down from 5.0 years for 2017 exits.
The chart below shows the median holding period for the portfolio company exits each year.
2018 Median Holding Period = 4.7 years
Peak = 5.6 years, (2014 – recovering from the recession)
Low = 3.0 years, (early 2000’s dot com boom… although it went down to 3.5 years in 2008 as well)
Leading or Lagging Indicator?
When the economy is booming and valuations are on the rise (as they have been for most of 2018), private equity firms tend to realize a return on equity much quicker and therefore hold portfolio companies for shorter durations. Conversely, PE firms that acquire companies just prior to a downturn must hold their portfolio companies much longer to realize a net gain.
People ask me if the private equity holding period could be a leading indicator for the overall economy. While the answer to this is somewhat speculative, I would have to say I believe it is a lagging indicator, although a fast-reacting lagging indicator. Again, this is speculative on my part based on evidence during the last recession.