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Private equity funds raised between 2019 and 2021 are likely to fall short of the return promises made at fund close, industry executives are warning.
The cohort is colliding with the core constraint of vintage investing: the internal rate of return a fund delivers to its limited partners is a direct function of entry price relative to exit price, and the window those executives now describe as frenzied set entry conditions that the current environment is struggling to reward.
Private equity returns depend on what a fund paid to acquire its portfolio companies and what it recovers when it exits.
The higher the acquisition price, the more the exit market, the growth of the underlying businesses, or both must deliver to clear the return bar promised at fund close.
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