How Long Should You Stay Invested?

Duration by Fund Strategy

Understanding the duration of an investment can be helpful in assessing the illiquidity of closed-end primary funds. In this week’s analysis, we calculate “implied duration” for different private markets strategies. In other words, how much time, on average, is capital at work for a private markets fund?  

Infrastructure and credit origination funds demonstrate shorter implied durations – often less than four years. This expedited recuperation period can indicate lower liquidity risk exposures for investors, as capital is returned more swiftly. In contrast, higher risk and returning strategies such as venture capital see an extended duration as their underlying assets take longer to generate and return value.  

Understanding the duration of illiquid assets is vital for making proactive portfolio changes that align with an investor’s strategic goals and capital needs. This nuanced approach to portfolio construction is important for LPs seeking to balance their portfolio’s return, risk and liquidity across private market investments.  

Catch up on Chart of the Week.

Definitions 

Corporate Finance/Buyout: Any PM fund that generally takes control position by buying a company. 

Credit: This strategy focuses on providing debt capital. 

Growth Equity: Any PM fund that focuses on providing growth capital through an equity investment.  

Infrastructure: An investment strategy that invests in physical systems involved in the distribution of people, goods, and resources. 

Mega/Large Buyout: Any buyout fund larger than a certain fund size that depends on the vintage year. 

Natural Resources: An investment strategy that invests in companies involved in the extraction, refinement, or distribution of natural resources.  

Origination: Includes any PM fund that focuses primarily on providing debt capital directly to private companies, often using the company’s assets as collateral.  

Real Estate: Any closed-end fund that primarily invests in non-core real estate, excluding separate accounts and joint ventures. 

SMID Buyout: Any buyout fund smaller than a certain fund size, dependent on vintage year. 

Venture Capital: Venture Capital incudes any PM fund focused on any stages of venture capital investing, including seed, early-stage, mid-stage, and late-stage investments.