What Does Private Equity Investment Period Mean?
The private equity investment period refers to the typical hold that a private equity fund has on a portfolio company. While this investment period varies depending on the PE firm's philosophy and approach, it has historically averaged four years. There is a a growing trend for the investment period to be scaled back to an average of three years, particularly as LPs seek to reduce the overall fund period from the traditional 8–12 years to a much quicker 6–8 years (especially in real estate focused funds).
Divestopedia Explains Private Equity Investment Period
While PE firms have to manage the investment periods for specific portfolio companies properly to keep LPs happy, it is usually the company's management teams and founders who inquire most about its length. This is usually because founders are looking to get the proverbial "second bite of the apple," which occurs when the second sale occurs as the private equity firm monetizes. Having a short investment period can motivate the founders to work harder as this second bite can come quicker than if the investment period was longer.