The behaviour of buyout funds when confronted to an adverse economic environment

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Funds with vintages 2005-2007 have weathered one of the worst financial storms in financial history. Ten years later we have sufficient data to analyse the behaviour of European buyout funds that went through these difficult times. The objective of this paper is to measure how funds that deployed their capital in an environment characterised by a supportive economic growth, low interest rates (it was the feeling at that time), high leverage and ever increasing asset prices, reacted to the economic storm that was unleashed in the fall of 2008.

While the group of selected funds as a group confirm intuitive results, the underlying patterns show a very different story.It is imperative that decisions are made on the basis of solid analyses.

The transition matrices resulting from these analyses are of prime importance for the models used by LDS Partners. Projections of expected future returns, of liquidity profiles and the stress testing of portfolios of funds have a much higher likelihood of mirroring the future reality.

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