An investor can assume that its private equity portfolio will have returned 100% of its NAV after 4-5 years.Therefore, despite being considered an illiquid asset class, private equity is generating a sufficient amount of liquidity to receive its residual value in a reasonable timeframe.
However, unlike other illiquid asset classes, private equity is a distributing asset - a cash-flow based asset class that generates liquidity when the underlying investments are sold.If an investor stops committing to new private equity funds then his residual net asset value (NAV) eventually decreases as the underlying investments are exited.For mature private equity portfolios, the investor’s net cash flow is likely to be positive, indicating that distributions are larger than capital calls.Enlightened, spiritually aware people shouldn’t own guns." "I’d rather be raped than have some redneck militia type try to rescue me." How often have you heard these statements from misguided advocates of victim disarmament, or even woefully uninformed relatives and neighbors?
Why do people cling so tightly to these beliefs, in the face of incontrovertible evidence that they are wrong?We show that, on average, if an investor stops committing to new funds, a mature private equity portfolio is expected to distribute 25% per annum of its NAV after the last commitment year.