Prolonged Private Equity Holding Periods: Six Years Is the New Normal

32 Pages Posted: 21 Nov 2016 Last revised: 16 Nov 2017

Date Written: November 15, 2017

Abstract

The high internal rates of return sought by private equity funds are highly sensitive to portfolio company holding periods. We examine a sample of 2,328 European buyouts for which detailed financial statement data is available for controls. Our results establish that the average holding period has lengthened from an average of 4.7 years before the financial crisis to 5.8 years after the crisis. What explains this fact? We examine several potential explanations. We rule out that the increase is fully driven by changes in exit markets. Changes towards longer-term value creation mechanisms, and increased PE market competition are possible explanations.

Keywords: Private Equity, Holding Periods, Financial Crisis

JEL Classification: G24, G30

Suggested Citation

Mäkiaho, Juho and Torstila, Sami, Prolonged Private Equity Holding Periods: Six Years Is the New Normal (November 15, 2017). Available at SSRN: https://ssrn.com/abstract=2872585 or http://dx.doi.org/10.2139/ssrn.2872585

Juho Mäkiaho

Korona Invest ( email )

Tekniikantie 12 (Innopoli 1)
Espoo, 02150
Finland

Sami Torstila (Contact Author)

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland
+358 40 353 8069 (Phone)

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