Keep pulling the thread on Hugh MacArthur.
In 2023, distributions to private equity Limited Partners (LPs) were 11% of their Net Asset Value (NAV), a level previously seen in 2008 during the global financial crisis.
Private equity LP distributions as a percentage of NAV were 15% in 2022 and 12% in 2023, showing a multi-year decline in liquidity.
The current average private equity acquisition multiple is 12x EBITDA, up from a historical average of 5-6x, which has eliminated the margin for error in generating returns.
Over the last 14 years, realized returns in private equity buyouts have been driven 50% by revenue growth and 50% by multiple expansion, with zero contribution from margin improvement on average.
Globally, private equity buyout portfolios currently hold approximately 30,000 companies with a combined value of $3.6 trillion.
Approximately half of the companies held in global buyout portfolios, valued at around $1.8 trillion, have been held for five years or longer, indicating a significant exit backlog.
Hugh MacArthur predicts that the current private equity liquidity crisis will not be resolved in 2025 or 2026 and will continue to pressure institutional LPs for several more years.
Co-investment now accounts for 30% to 40% of every dollar invested in the private equity industry.
The rise of co-investments has caused some private equity General Partners (GPs) to experience a 50% reduction in their effective fee rate over the last decade.
In the first quarter of the current year, no buyout fund closed above $1 billion, an event described as unprecedented in recent memory.
Hugh MacArthur predicts that mid-sized private equity firms lacking both the scale for major investments and a differentiated alpha-generation strategy will struggle to survive.
Historically, annual distributions to private equity LPs have ranged between 20% and 30% of Net Asset Value (NAV).