Private equity valuations come back to earth as markdowns increase
Private equity managers are becoming more willing to cut portfolio valuations after a period of elevated marks across the sector. The shift reflects mounting pressure on firms to realize assets more realistically as investor patience weakens.
Highlights
- Private equity fund managers are increasingly marking down portfolio valuations, with Texas Christian University's $3 billion endowment noting overvaluations from 2022 to 2024.
- Firms are more willing to sell stakes below previously marked values or transfer assets into continuation vehicles to reflect market conditions.
- Investor pressure for clearer pricing and liquidity is driving lower marks and discounted sales, aligning private equity portfolio values more closely with actual market performance.
Valuation reset gains momentum
As reported by Bloomberg, Jason Safran, chief investment officer at Texas Christian University, says private equity portfolios were "way over-marked" for several years and fund managers are now adjusting valuations more readily.Safran, who oversees the school’s $3 billion endowment, says valuations are particularly inflated from 2022 through 2024. Speaking on a panel at the Bloomberg Invest Dallas conference on Tuesday, he says firms are increasingly prepared to sell holdings below their marked values or move them into continuation vehicles.
Investor pressure reshapes exit decisions
The change points to a more disciplined environment for private equity managers as limited partners push for clearer pricing and liquidity. Lower marks and discounted sales can help align portfolio values with market conditions after a prolonged stretch of optimistic assessments.Safran says the adjustment is happening as investor patience wears thin, suggesting pressure on managers to demonstrate credible exit paths. For endowments and other institutional investors, the trend may offer a more realistic view of portfolio performance and asset realizations.
In our earlier article on the Philippine Social Security System’s equity portfolio results, we covered how the state pension fund highlighted P204 billion in realized gains and dividend income since 1968 while addressing scrutiny over recent unrealized losses. The fund argued that paper losses are not cash losses unless assets are sold below cost, and pointed to recurring dividends and long-term holdings as support for its overall performance.
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