In an interesting new paper from a couple of young business school professors (Makiaho and Torstila (2016)), recent evidence from the European equity buyout universe suggests that the holding period of private equity investments has lengthened, from about 2.6 years in 2000 to about 6 years in 2015.  What’s behind the shift?  Is the shift ongoing or just a transitory component of the current business cycle environment?  Here’s a review.


First, some background.  The following is from page 20 of Mikiaho and Torstila’s paper, representing the average time of exited portfolio companies by exit year.

In the year 2000, the average number of years of holding portfolio companies was just 2.6 years.  That was at the height of the technology bubble, something that eventually burst.  When the bubble did burst, the length of time increased to 3.6 and 4.0 years in 2001 and 2002 (i.e. the recession years).

From 2003 to 2006, the holding period floated in the narrow range from 3.9 to 4.7.  In 2007, at the height of the global housing boom, the holding period surpassed the 5 year mark to 5.1 years.  Since passing the 5 year mark, the average holding period hasn’t gone lower, increasing to 5.5 during the global financial recession, then declining to 5.1 years in 2011, and then expanding again, ending 2016 at about 5.9 years.

Pic1 Source: Makiaho and Torstila (2016)

Possible Explanations for the Trend

What is causing the upward drift in the holding period of private equity investments in Europe?  Perhaps the answer to this question lies in a complex mix of management involvement, an increased number of buyout funds, and exit market conditions.  A brief discussion of these three possibilities follows.

Management Involvement

One potential explanation is management involvement.  The thinking behind this factor is that when management is more actively involved, there may be increased willingness to hold on to a project for a longer period of time.  The authors find that buyouts with management involvement have a 43 percent lower exit hazard rate.  The following regression output (table 5 of the author’s report) summarizes the empirical “evidence” of this argument.  For individuals with less of a background in statistics, circled in blue are the results on management participation.  The positive “coefficient” means that there may be a statistically significant relationship between management participation and length of time (in months) of holding on to an investment.

Capture2 Source: Makiaho and Torstila (2016)

Increased Competition in the Buyout Universe

Another potential explanation is that there’s increased competition in the buyout universe.  Various studies have indicated that a record number of new buyout funds were raised prior to the global financial crisis, and that these funds have performed on par or slightly worse than public markets.  The authors “show that private equity holding periods are likely to be longer when there are more new entrants in the buyout market.”

Exit Market Conditions

A third potential explanation for the lengthening of the holding period is exit market conditions.  The idea behind this is that credit market conditions and “hot” or “cold” private equity activity may affect the holding period of investments.


In the past few years, we’ve seen increase in the length of time private equity firms are holding on to their company investments.  The holding period has gone from a low of 2.6 years in 2000 to 5.9 years in 2015.

What’s behind the increase?  Among the many potential explanations, three possible explanations include increased involvement of management, an increase in competition in the buyout universe, and changes in the exit market conditions.


With Donald Trump surprising many in his astonishing rise to the American presidency, now seems like a good time to review how the economy might perform in the coming first year of his presidency.  In what follows are three topics on the 2017 horizon, including the American consumer, business investment, and Federal Reserve interest rate policy.

The American Consumer

First up, the American consumer.  During the outgoing administration, the American consumer, as measured by Retail Sales, was fairly subdued.  Nothing grand, but nothing havoc-wreaking either.

Currently, Retail Sales are barely growing above the 2% clip, an anemic rate when considering that around 70 percent of “official” U.S. GDP stems from retail spending.

Question – with the retail sales in weak territory, a place they’ve been for the past couple of years, can the incoming president do any better?

Well, the answer depends upon at least three things.  First, will the confidence of American consumers keep thriving?  If Donald Trump finds a way to inspire more confidence in the American economic picture, it will certainly show up in their spending habits.  Second, how will Americans respond to the proposed tax cuts?  If tax cuts induce spending, Retail Sales will surely rise.  Third, can Trump get something out the Millennial generation?  The Millennial generation showed little love to the Obama Administration, and if Trump is going to see anything close to 5 percent Retail Sales growth, he’s going to need the younger generation feeling more confident in their economic future.

Retail Sales, YY

Business Investment

The consumer outlook is critical to a successful Trump presidency.  Perhaps even more influential is the business community’s outlook, as measured by business investment.  One commonly used gauge for the state of business investment is Durable Orders.  There’s lots of room for improvement here.  Over the past couple of years, Durable Orders have continuously decelerated after peaking in July/September 2014.  If Trump is going to have any success with his economic legacy, he’s going to need this trend to reverse.  Perhaps the proposed tax cuts and other policy choices will flip this, and if so, the incoming Trump Administration could see some of the strongest business investment years presidents have ever seen.  That’s a big if.

Durable Goods

Federal Reserve Interest Rate Policy

The outgoing Obama Administration saw just one rate hike over its 8 years in office.  Incredible if you think about it.  No other president that served a full 8 years received such charity.  The question here is whether the Fed will be so accommodating for President Trump.  If one looks at the general political bias of the Fed, the answer is probably no.  Of the past 78 rate hikes, about 75 percent have occurred during Republican administrations.  Perhaps Republican administrations didn’t need the help, but then again, perhaps there’s something more to the Fed’s political views.  Trump might need the help of the Fed the way the Obama Administration got it – we’ll see if he gets it.

 Rate Hikes by Party


Overall, among the many variables that will make or break the incoming Trump presidency, three are critical: the response of the American consumer, as measured by Retail Sales; the response of businesses, as measured by Business Investment; and the response of the Federal Reserve, as measured by their interest rate policy.  Derailments or acceleration in any one of these indicators could cause large-scale impacts on Trump’s economic legacy.


This week the Merrill Corporation released its most recent survey results of 30,000 Mergers and Acquisitions (M&A) professionals across the world.  Many of the findings probably aren’t all that surprising, but some might be.

The Broad Infographic First

Before delving into the details, here is Merrill Corporation’s broad infographic of their survey results.

Shown in the infographic are five areas of top-line results, which deal with the top industries, the drivers of M&A activity, the geographic breakdown of M&A activity, predictions for M&A activity down the road, and the timeline of activity.

Merrill Broad 1 Source: Merrill Corporation

The Industries

The first observation of Merrill’s survey results is the top-line industries for M&A activity.  They report that respondents think the top 3 industries for expected deal flow are IT Service Providers, Manufacturing, and Energy.

Is anyone else surprised by these?  Manufacturing is just now beginning to see signs of life after a very weak 2016 (almost recessionary for the Manufacturing industry).  If there’s an industry that should have already had its peak, it would be Manufacturing (at least if you think M&A activity happens when prices or industry activity may be depressed).

The other two are less surprising, although they keep up with idea that IT and Energy are hot.  Maybe the heyday could already be over (at least for the current economic cycle).

Industries 2 Source: Merrill Corporation

The Drivers of M&A

The second observation is the stated reasons behind the M&A activity.  Almost half of respondents indicated that they thought “Strategic M&A” was the largest contributor to M&A activity, well ahead of second, third, and fourth places Consolidations, Improved Conditions, and Attractive Valuation.

Improved Conditions and Attractive Valuations are not surprising.  The surprising thing is how strong “Strategic M&A”  came in. Who would have thought that after 8 years of economic recovery/expansion “Strategic M&A” would be on top.

Drivers 3 Source: Merrill Corporation

The Regions Behind M&A Activity

The third interesting observation is just how dominant American M&A activity is.  One might wonder when China and Europe will start waking up to the idea that the financial industry – and its activities – can actually be quite beneficial to economic growth.

Regions 4 Sources: Merrill Corporation

The Predictions

The fourth observation is just how subdued the outlook is.  An incredible 61 percent of respondents said they only expected a “moderate increase” in M&A activity over the next 12 to 24 months.  Since when did M&A professionals become so “slow and steady”?  The industry is known for being on one extreme or the other – fast and furious or feast and famine.  Something is wrong when most are thinking such solemn thoughts.

Activity 5 Source: Merrill Corporation

The Timeline

Lastly, isn’t it a little bit surprising that only 3 percent of respondents are planning M&A activity in 18 to 24 months?  This could be an indicator that something is wrong with the economic environment.

Planning Source: Merrill Corporation


Overall, the results of Merrill Corporation’s most recent M&A survey provide some interesting insights into industry insiders’ views of the coming future. Time alone will tell if these predictions come to fruition or not.


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Part One of a Two Part Series It’s been almost six years now since Arif Naqvi’s Abraaj Group provided £4 million to fund the first Master’s program in private equity in the world. It was a bold endeavor. In September 2010, when the MSc Finance & Private Equity program was launched at the London School […]

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