Global LBO returns see sharp decline in H1 2020 - research

Eliza Punshi
06 October 2020

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The coronavirus pandemic hit returns for leveraged buyouts sharply in the first half of 2020, according to a private equity performance report by eFront.

Performance of active funds globally, measured by total value to paid-in (TVPI), fell from 1.45x in Q4 2019 to 1.36x in Q1 2020, matching the levels last seen in 2014. The decline continued in Q2 2020, although less sharply.

The report also noted that the fall in performance pushed several vintage years below the long-term trend line, with funds raised in 2013, 2015 and 2016 now underperforming the average.

In keeping with the trend over the past five years, Q1 2020 saw a drop in time-to-liquidity, compared with Q4 2019, but less significantly, as managers took a wait-and-see approach and focused on managing existing portfolio companies through the crisis.

However, as time-to-liquidity in 2019 was stable at around 2.75 years, even with a modest drop in Q1 2020, the current level of 2.7 years approaches the record low registered in 2018.

The fund selection risk increased in Q1 2020, at a rate that the report noted is significant but not exceptional. However, it noted that this risk could further increase in the second half of 2020 as the economic consequences of the pandemic unfold.