However, unlike other illiquid asset classes, private equity is a distributing asset - a cash-flow based asset class that generates liquidity when the underlying investments are sold.If an investor stops committing to new private equity funds then his residual net asset value (NAV) eventually decreases as the underlying investments are exited.Since that time, banks have acquired and/or built their own ABL units and now dominate the market.
Here’s one to consider: Buy a closed-end fund that’s trading at a discount but set to liquidate in a few years at net asset value.
Traditionally, finance professionals have used the term more narrowly to refer to securitizations other than mortgage-backed securities (MBS).
When collateralized debt obligations (CDOs) and collateralized bond obligations (CBOs) became popular in the early 2000s, they too were excluded from the definition.
The purpose of this paper is to have a closer look at this characteristic.
We show that, on average, if an investor stops committing to new funds, a mature private equity portfolio is expected to distribute 25% per annum of its NAV after the last commitment year.