PitchBook News - How PE cash flows have changed

While vintages 2016, 2017, 2018, and 2021 are following within the range of J-curve patterns set by the 2006-to-2013 cohort, LPs invested in 2019 and 2020 funds have seen steep negative cash flows—steeper even than the 2006 vintage at the same point in the fund lifecycle, which was historically slow in returning cash to investors.

The 2019 and 2020 vintages have been hit by the triple whammy of the pandemic occurring early in their fund lives, spending the first and second year of their investment periods aggressively acquiring companies at soaring valuations, followed by the interest-rate-hike cycle during their respective fourth and fifth years, which has tested the validity of those valuations.

However, all is not necessarily lost—even 2006 vintage funds managed to reach net cash flow positivity by year 10. If the exit environment recovers and interest rates fall, it is not impossible for 2019 and 2020 vintages to make up lost ground.

Though they are early on in their fund lives, 2021 vintage funds have so far called capital at a more reasonable pace than their immediate predecessors. These funds likely have less exposure to the exorbitant 2021 valuations than the 2019 and 2020 vintages, especially those that launched later in the year.

With that said, 2021 vintages have been making their first- and second-year investments in a high-interest-rate environment and will be reliant on a soft landing to generate strong returns for LPs.

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Behind the J-Curve: Tracking recent vintage performance and cash flow patterns in PE