Buyout fund pricing continues to decline

High valuations and macroeconomic fears are causing investors to pull back, according to Setter Capital.

Pricing for buyout funds has fallen sharply in the last three months, a trend visible across most private asset classes.

The average high bid for stakes in buyout funds in the last 90 days was 93.55 percent of net asset value, compared with 99.12 percent in the previous 90-day period, according to data from intermediary Setter Capital. The last time the average top price dropped below 95 percent was two years ago when it hit 93.73 percent.

The average top price for a buyout fund was down 2.2 percent on 31 December compared with the same date of last year, when it was 95.68 percent of NAV.

“What we hear from buyers is that underlying asset valuations are almost at peak level,” said Tejvinder Mondair, a member of Setter’s fund advisory team. “The concerns over whether that will continue or pull back given the macroeconomic environment mean they’re not outbidding like they used to do.”

This in turn is causing some sellers to stay away from the market because they are unable to achieve a price on par or better, Mondair added. The steepest drop-off in prices is in the mid-market, with top names still able to command a premium.

The average high bid for a venture capital fund was 74.76 percent of NAV during the last 90-day period, a drop of 7.78 percent on the previous one. High valuations and high-profile disappointments, such as the decision by office space provider WeWork to pull its initial public offering, are part of the reason for this, according to Mondair.

The only type of fund that attracted higher bids in the last 90 days compared with the prior period was distressed credit, which had a 0.20 percent increase.

The research was based on the analysis of 2,220 funds, including 824 buyout funds, 168 VC funds and 97 distressed-credit funds.