Prior to joining Wolfpack in early 2019, I spent just over 6 months working as an Analyst for a Private Equity (“PE”) fund in Austin, Texas. During that time, I noticed that the PE industry was quietly dealing with a significant problem: EV/EBITDA multiples had peaked in 2014, and many funds were struggling to find exits for their aging portfolio companies that would produce returns anywhere near their target IRRs. In short, they were running out of time to find buyers for investments they overpaid for years earlier.
PE investments are inherently less liquid than publicly traded securities. To compensate for this, General Partners (“GPs”) provide their Limited Partners (“LPs”) with very specific timelines and high expected rates of return to encourage investment in their funds. The timeline is generally around 5 years from investment to exit and the target IRR (the annualized return effectively promised to LPs) is usually between 20% and 30%.