TIME IS OF THE ESSENCE: ASSESSING TIME-TO-LIQUIDITY RISKS

Average times-to-liquidity are a useful bench-marking instrument for fund investors. The time-to-liquidity of fully realized funds ranges from 4.1 years for mezzanine funds to 5.6 years for early-stage venture capital funds. These elements are interesting in anticipating the theoretical time-exposure of investors. However, they might aggregate significant variations from one vintage year to another.

Indeed, depending on the strategy, the minimum and maximum time-to-liquidity per vintage years can fluctuate a lot. Venture capital is probably the strategy which shows the largest divergences from the average. The minimum time-to-liquidity is exceptional as it results from the particularly favorable conditions for venture capital exits at the end of the decade 1990. Very long time-to-liquidity translates into lower multiples, and probably illustrate the challenging conditions that managers had to face before being able to sell portfolio companies.

Figure 3 – Variation of multiple of invested capital and time-to-liquidity of fully realized private markets funds

Variation of multiple of invested capital

Source: eFront Insight, as of Q2, 2019. “bal.” refers to “balanced, “PRE” to “private real estate”, “Opp” to “Opportunistic. Diamonds refer to the shortest time-to-liquidity observed for any given year, the dot to the average time-to-liquidity and the square to the longest.

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