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

Abstract

The high internal rates of return sought by private equity funds are highly sensitive to portfolio company holding periods. We examine the determinants of holding periods for a sample of European buyouts from 2000 to 2015. Our results establish that the average holding period has lengthened to 5.8 years in the period after the global financial crisis. What explains this fact? The European sample allows us to control for both portfolio-company-level and fund-level differences. We first rule out that the increase is fully driven by changes in exit markets. Increased competition in European private equity markets remains a plausible complementary mechanism.

Keywords: Private Equity; Exit; Holding Period; European Buyouts, Financial Crisis

JEL Classification: G23; G24; G34