NYPPEX: Expect Private Equity Fund Valuations to Decline 16% to 24% in First Quarter 2020
Rarely have we witnessed a quarter in which private equity funds’ net asset values have been expected to be written down so dramatically as in the first quarter of 2020.
Due to these expectations, secondary bids for private equity funds and private companies plummeted in the first quarter.
NYPPEX estimates March 31, 2020 net asset values for private equity funds worldwide will decline 16% to 24% on average compared to December 31, 2019.
In particular, given the weak post-IPO performance of some venture-backed companies such as Casper Sleep Inc. (NEA, Blackrock) whose IPO priced at $13.50 on February 6, 2020 and closed down 68% at $4.29 on March 31, 2020, we expect some venture funds will significantly write down net asset values in the 1Q2020.
Hardest hit in the 1Q2020 are expected to be natural resource funds, whose March 31, 2020 net asset values we estimate will be 34% lower on average compared to December 31, 2019.
Oil, Natural Gas and Field Services funds may have the largest percentage write downs in the 1Q2020.
After NAV write-downs in the 1Q2020, we estimate that secondary bids will still be 5–10% lower on average compared to December 31, 2019, to compensate for fewer distributions and longer terms in the future.
For quality private equity assets, we expect some secondary investors will increase bids to similar levels as seen in December 2019.
These trends will create compelling opportunities for secondary investors ahead.