Private equity funds could see more realisations if markets remain stable in autumn, says broker

Stifel analysts anticipate a recovery in private equity fund realisations, including portfolio sales and IPOs, should market stability persist into autumn. The sector has recently faced subdued valuations and limited exits, with NAVs typically moving only +/-3% and low single-digit returns, as managers held off sales amid volatility and investors favored "Mag 7" tech stocks. A resurgence in exits and stronger NAV growth, potentially 10% annually, is crucial to attract new investors and reduce current discounts.

Analysis

According to an analysis from Stifel, the listed private equity sector is positioned for a potential increase in realisations should market conditions stabilize through autumn. The sector has recently been characterized by subdued activity, with first-half Net Asset Values (NAVs) expected to show minimal movement within a +/-3% range and overall returns remaining in the low single digits. This underperformance has been exacerbated by an opportunity cost dynamic, as investors have been drawn to the high returns of "Mag 7" technology stocks. Stifel analysts anticipate that a less volatile market environment would encourage private equity managers to pursue portfolio sales and IPOs before the end of the year. A successful pickup in these exits is considered critical, with the potential to drive NAV growth of at least 10% per annum, a key threshold that could attract new investors and help narrow the sector's current valuation discounts.

Key Decisions for Investors

• Investors should closely monitor market volatility into the autumn, as a period of sustained stability is the primary precondition for the anticipated recovery in private equity exits and valuations.
• A key performance metric to track is NAV growth; an acceleration towards or beyond the 10% annual rate cited by analysts would signal that the sector is successfully attracting new capital and could begin to close its valuation discounts.
• Given the sector's recent underperformance relative to large-cap tech, investors may consider listed private equity as a potential value or rotation play, contingent on tangible evidence of increased portfolio sales and IPO activity from fund managers in the coming months.