Buyout fund distributions, as a percentage of net asset value (NAV), have been substantially below their long-run average since 2021. Although distributions have historically been very cyclical, it is unclear whether the recent sustained decline is primarily cyclical or if it is the beginning of a secular shift to lower distribution rates associated with sustained lower returns and/or longer holding periods. To better understand the recent environment, we analyze a large dataset of global buyout fund deal exits and cash distributions provided by MSCI. We estimate models explaining historical levels of aggregate distributions, fund-level distributions, and individual deal exits and then use these to forecast out-of-sample activity in recent years. In our aggregate analysis, we find that macro and industry variables are able to explain only about half of the decline in distributions. However, when we conduct more granular analyses at the fund and deal levels, historical determinants are able to explain a larger percentage of recent exit activity. Variables of particular importance are higher short-term interest rates and recent deal valuations relative to the 2021 peak. While much of the decline in distributions in 2022-2023 appear related to cyclical factors, our analysis suggests distributions should have rebounded to above their long-run average by the end of 2025.
Greg Brown, UNC Kenan-Flagler Business School & IPC
Wendy Hu, MSCI
Christian Lundblad, UNC Kenan-Flagler Business School & IPC
William Volckmann, Institute for Private Capital
Director, Senior Fellow, IPC; Richard Levin Distinguished Professor of Finance, University of North Carolina, Kenan-Flagler Business School
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