Investors often separate private equity from public equity in their thinking and planning. That is a mistake. Private equity valuations ultimately converge with public market valuations. However, this convergence takes time and always operates with a lag.
As detailed in PitchBook today, many private equity investors are currently experiencing this lag as more funds mark down valuations.
From the article: “Recent markdowns are primarily a function of playing catch up with the reality that valuations have shifted lower from where they were in 2021,” said Andrew Akers, senior quantitative research analyst at PitchBook. “This process tends to take a while to play out as PE managers typically anchor to their perceived intrinsic valuations of portfolio companies.”
As the article states, this process tends to take time as most private equity funds only adjust valuations on a quarterly basis (if even that frequently).
However, if you are a private equity investors — don’t get too down. Recent data suggests that we are perhaps through the worst of the inflation battle. Public markets valuations have already begun to rebound a bit.
The process of marking PE valuations down takes time. Don’t be too surprised if the process of marking them back up moves (much) more quickly.
© Copyright July 2023. Marc Patterson. All Rights Reserved.