Writing in his daily blog on August 31st, peHub Wire editor Dan Primack comments on the current “disconnect” between PE portfolio values and current market values:
“Dear reader: I plead appalling naiveté when it comes to mark-to-market accounting. You see, I had assumed that FAS 157 would result in private equity firms using public market comps when valuing their portfolio companies. As such, my theory was that the S&P 500 losing more than 11% of its value in Q1 would be coupled by double-digit declines among typical PE portfolios. When that same index rebounded in Q2 by more than 15%, we’d see some corresponding leap in PE portfolios. Not a perfect mirror, of course, but at least something reflective. Silly me…
New data from Cogent Partners shows that the median buyout fund write-down was -2.1% in Q1 2009, while the median VC fund write-down was -2.8 percent. In fact, only 15% of all funds examined by Cogent reported a percentage decline greater than that of the S&P 500.
Cogent also found a lack of private/public correspondence in Q2, when the median buyout fund was written up at 1.1% and the median venture fund was written down by -1.2 percent. (Note: Q2 sample sizes are smaller)
Does this mean that private equity firms (and their accountants) are simply eschewing public market comps, in favor of static conservatism?”
Or does this mean that Primack (and the media in general) need a primer? Most valuation analysts will agree that mark-to-market accounting for fair values of private portfolio companies is far more complex than consulting the public market for “mirror” values. What do you think? Send comments to the BVWire editor. We’ll be taking a hiatus for the Labor Day holiday, so look for our next issue on September 16, 2009.
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