Private Equity Holding Periods – Data Spread
In previous PE portfolio company holding period studies, we have reported the median holding period by year of exit. For a broader picture, the study below shows the quartile spread of that same data.
- Every year, the minimum holding duration is very short – just a few months. It has always surprised me that some investments are turned this quickly. For these companies, the water cooler is a busy place.
- Every year, the longest holding period was more than 20 years. One company was held 33 years (1981 – 2014). 1981 was the year Ronald Reagan became President. The Dow Jones Industrial Average was 875 and I was in 5th grade. Of course, these are not great reference points for these transactions, because the three longest holdings were all European-based investments made by European-based PE firms (Belgium, Netherlands, Germany, respectively). This is a cultural investment difference that I have written about previously, that European private equity firms, investing in EU portfolio companies, hold longer than their North American counterparts.
Aside – A Brief Comment on Statistics
Seeing the data spread like this shows why it is statistically important to report the Median holding periods for portfolio companies and not the Average. This is because the minimum is about the same for each year (approaching zero), and the maximum varies considerably. In cases like this, the maximum data points will tend to pull the average up and have little effect on the median. That is, the average will be unduly influenced by a few outlier data points at the upper end of the range. Because it’s the trend we are looking to identify and track, not the influence of a few outlier data points, the outliers should be noted, but they should not significantly sway the calculation that reports on industry trends. Hence, we report the Median, not the Average.