Agefi Luxembourg - octobre 2026

AGEFI Luxembourg 24 Octobre 2026 Marchés &Wealth W hy DPI and honest valuations now decide which managers I back, how higher rates and fees changed the buyout maths, and why the secondary market has become my reality check By Shanu SHERWANI, Chief Investment Officer KneipManagement Let me start with a confession, since the rest of this piecemight soundotherwise: I believe in private equity. I’maCIO, I al­ locate to it and I intend to keep doing so. Owning companies privately, improving them and selling themwell is one of the bestways I knowto compound capital. ButtheFTrecentlypointedout,correctly,that the deal between private equity and its in­ vestorshasaproblem.Thedealhasalwaysbeensim­ ple.Themanagersaystome:givemeyourmoney,let me lock it up for tenyears, payme 2 and20 along the way,andinreturnIwillgiveyoualpha.Alphameans areturnabovewhatthemarketwouldhavegivenyou anyway. That extra return is the whole point. It pays for the lockup, the fees and thequarterly reports that arrive threemonths after the quarter theydescribe. I’vekeptmysideofthedeal.Themoneyisverymuch lockedup,andthefeeshavebeenpaid.Theotherside, where the cash comes back with alpha on top, is not happening. The cash is slow to return, and for many funds the return above the market isn’t there either. So, to be clear, the question isn’t whether to own pri­ vate equity. It’swhose. Where’smymoney? McKinseyputsdistributionsinthefirsthalfof2025at about 6% of AUM, against a tenyear average of around 14%. Investors are getting back roughly half the cash they used to. The fees, you’ll be glad to hear, have held up fine. More on that shortly. Bain reports that median holding periods at exit are now close to sevenyears, against five to six over 2010 to 2021. What higher rates actually do to a buyout Interest rates areoneof the culprits, and themechan­ ics are worth spelling out. Abuyout is, at its core, a companycarryingalotofdebt.Takeabusinessearn­ ing €100mof EBITDA, boughtwithdebt of six times that, €600m.At 5%interest, it pays its lenders €30ma year, which is manageable. At 9%, closer to what floatingrate leverageddebt has cost since rateswent up, it pays €54m. More than half of what the com­ pany earns now goes to the bank before anything is left for investment, for paying down debt or for the owners.That’smyownillustration,notaspecificdeal, but anyone who has sat on a portfolio company board latelywill recognise the shape. Thishurtsinthreeways.Cashthatusedtogotoshare­ holders now goes to lenders, so there is less to dis­ tribute. Buyers pay less, because their own financing costs more, so managers hold on rather than sell cheaply. And every future cash flow is worth less today. StateStreet attributesmuchof the recent short­ fall to the end of the lowrate regime, which reduced the contributionof leverage andmultiple expansion. The machine that worked beautifully when money was free now has sand in the gears. Timing matters too. Public markets absorbed all of this within a few painful months in 2022. Private valuations, set by the managersthemselvesusingmodelsandlaggingcom­ parables, took the news more gently. It’s a bit like a scale that updatesonceayear androundsdown. The downsidehasn’tdisappeared.It’swaitingfortheasset tomeetanactualbuyer,andaswe’llsee,somebuyers have startedpublishing their opinion. Themeter keeps running There is one part of private equity that has never had a liquidity problem, and that’s the fees. During the investment period, typically the first five years, the manager usually charges around 2% a year on everything I’ve committed, whether or not he has invested it.After that, the fee typicallymoves to the capital still invested, at a lower rate. Over a normal fund life, management fees alone can come to something like 12% to 15%ofmy commitment, be­ fore carried interest and before the transaction and monitoring fees some managers charge the port­ folio companies. Structures vary, but that’s the order ofmagnitude.And these fees come out ofmy capital calls, so part of what I “pay in” never reaches a company at all. When exits were quick, the fee clock ran for a few years per company and then the cash came back. Now holding periods stretch, funds ask for exten­ sionsandthemeterkeepsrunning.I’mpayingforthe managertoowncompanieshecan’tsell,atvaluations nobody has tested, while the cash I was promised stays inside the fund. Distributions are scarce. Fees arenot.Acontinuationvehicle canmake thisworse. When themanager moves a company fromhis old fund into a new one, he typically gets a fresh man­ agement fee and a reset carried interest on the same asset. Sometimes that’s genuinely the best out­ come for everyone. It is also, you’ll notice, very good for themanager. Meanwhile, the boring option WhileIwaitedfordistributionsandpaidfees, the thing I was supposed to beat kept compounding.McKinseyreportsthat buyoutfundsreturnedaround7%in 2025, against 18% for the S&P 500 and 22% for the MSCI World, the third year running. State Street showsprivateequitybehindthe S&P 500 over every horizon it reports through the first quar­ ter of 2026. So here’s the awk­ ward bit.Alpha, remember, is the return above themarket. Betaisthemarketitself,whichanyonecanbuy forafewbasispoints.Privateequitycharges2and20 for alpha. Lately, the alpha has been delivered by an ETF that costs almost nothing, can be sold on any givenafternoonandhasnever once sentmeacapital call.What was supposed to be beta has done alpha’s job. It didn’t even ask for carry. The return you’re quoted is not the return you earn It’sworsethanitlooks,becauseofaquirkeveryonein theindustryknowsandnobodyputsonthefirstslide. When I commit €10m to a fund, I haven’t invested €10m. I’ve promised to invest it whenever the man­ ager asks, over roughly four years, and distributions start before the last calls arrive. My money is never fully at work. Fund IRRmeasures the return on the money the manager uses. My return depends on all themoney I had tokeepready.An index fund is fully investedonday one. Here’s a stylisedversion. I set aside €10mfor a fund that calls capital in four equal instalments and re­ turns it in six equal distributions fromyears five to ten. While I wait, uncalled cash earns 3%, and each distributiongoes into an index returning 8%a year. The fund figures are net of fees, so the fee drag is already in here. The first fund beats the index by four points in the brochureandbyaboutonepointonmyactualmoney, beforeanythingfortenyearsofilliquidity.Thesecond reports 10%, gets pitched as a marketbeater and leavesmepoorerthanifI’dboughttheindexandgone onholiday. Sameasset class, verydifferent outcomes, whichbringsme to the real point. Why I still believe: the alpha is in themanager, not the asset class Overthelastdecade,McKinseyfindsthattopquartile buyoutfundsreturned24%ayear,against15%forthe S&P500and13%fortheMSCIWorld.That’srealout­ performance, and it’swhy I stay invested. But look at what it implies.Whendebt was cheap andmultiples rose everyyear, almost everymanager looked clever, and owning the asset class was enough. That era is over. Today the gap between managers who gen­ uinely buildvalue in their companies and thosewho mostly rode falling rates iswide andvisible. Owning “privateequity”getsyouthemedian,andthemedian lately is leveraged betawith a tenyear lockup and a full fee schedule. Real alpha nowcomes fromopera­ tionalimprovement,buyingwellandsellingwell,and onlysomemanagersdeliverit.Thechoiceofmanager hasalwaysmattered.Ithasnevermatteredthismuch. DPI: the number I now look at first So how do I choose? It starts with three letters that don’t appear often enough in fundraising decks: DPI, distributions to paidin capital. DPI is the cash a fund has actually returned to me, divided by the cash I’ve actually paid in. At 0.5x, I’ve had half my money back. At 1.0x, I’ve got all of it back, and ev­ erythingafter that isprofit. There’snomodel, noval­ uationcommittee andno judgement call. It’s theone number in private equity the manager can’t revise, because the cashhas either landed inmy account or it hasn’t. Compare thatwith thenumbersusuallyon the first page. IRR is sensitive to timing: one early win can flatter a fund for years, and it ignores the capital sitting idle. TVPI, total value topaidin, adds the manager’s own valuation of unsold companies to the cash already returned. In a market where companies aren’t sellingandvaluations lag, that val­ uation is doing a lot of work. An unrealised gain is a hypothesis. Adistribution is a fact. SoIcompareDPIwithsamevintagepeersatcompa­ rable ages. If a fund inyear sevenhasn’t returnedhalf its called capital, I want a good explanation. I ask wherethecashcamefrom,becauseacontinuationve­ hicle or aNAV loan (borrowing against the portfolio tohandmemyownmoneyback)producesdistribu­ tionswithout proving that anyone independent paid a real price for a real company. And I compare DPI with the fees paid over the same period, because a fund that has chargedme more than it has returned is an expensiveway to be patient. The problemwithmy own rule There is, unfortunately, a flaw inmy shiny newDPI rule, and the managers found it before I did. It used to go like this. Amanager raised a fund, invested it over four or five years, sold a few companies and came back with a track record that included actual cash. Today many managers come back much sooner. Afund has barely closed and the next one is alreadyontheroad.Youcanseewhytheylikeit.Each new fund charges its own fee on its own commit­ ments, so three overlapping funds triple the man­ ager’s fee income without a single company being sold. The fees compound nicely for themanager. It’s less clearwhat compounds forme. ItalsodefeatsmyDPItest.Whenthemanagercomes tome for Fund V, Fund IV is too young to have dis­ tributedanything,whichisnormal.SoIlookatFund III. In 2026 that’s typically a 2021 vintage, invested at peak valuations with debt that was cheap for about five more minutes. According to Dakota’s bench­ marks, the median 2021 private equity fund has re­ turned0.16x,andthemedian2022fund0.09x.Tofind meaningful cash, I often have to go back to 2019 or earlier, before Covid, before the rate hikes and in a completelydifferentworld.Withoutcare,I’mbackto committing on TVPI and a good story. What I do about it is not very glamorous. I look below fund level at the individual deals: what the manager has actually sold recently, at what price and with what losses. I ask how the recent funds are handling their companies’ debt now that rates are higher, since that is where the next fewyears of DPI will be won or lost. I push on fees for the new fund while the old one is still unrealised. And sometimes I simply skipa vintage.Agoodmanager will still be there for the next one. Amanager who is only good at raising funds may not be. Whomarks the homework? If recent funds have no cash to show, what I’mreally left with is their valuations, and those are set by the manager. There are valuation policies, auditors and committees,andmostmanagerstakeitseriously.Still, the companyhas no share price, the comparables lag and the person doing the marking is also raising the nextfundonthestrengthofit.It’sabitlikelettingstu­ dents mark their own homework, knowing the gradeswill go to the admissions office. Most students arehonest. The incentive is stillworth noticing. My simplest test is to compare exit prices with previous marks. When the manager actually sold a company, did the price beat the valuation it carriedayear earlier, or fall short?Amanagerwhose exits consistently beat his marks is valuing conser­ vatively. One whose exits keep coming in below is telling me how to read the rest of his portfolio. The more interestingdevelopment is that there isnowan outside opinion. The secondary market, where in­ vestors buy and sell existing fund stakes, has grown large enough to act as a benchmark for private valu­ ations.According to Jefferies, LPportfolios tradedat an average of 87% of NAV in the first half of 2026. The spread ismore telling: qualitybuyout portfolios without software exposure often tradedwithin sin­ gle digits of NAV, while real estatewent for 68%. In 2025, funds less than five years old sold at about 95%ofNAV, and tailend fundsmore than tenyears oldat 73%. Putdifferently,themarketnowpublishes aviewonhowmuch to trust each typeofNAV.A5% discount says buyers broadly believe themanager.A 27% discount says they believe him less, and they’re the ones paying real money. It’s the closest thing pri­ vateequityhastoashareprice.Itisn’tperfect:inacon­ tinuationvehiclethemanagersitsonbothsidesofthe trade,andsingleassetdealshavepricedclosetoNAV, whichmay reflect goodcompanies or a friendlypro­ cess. But it beatsmarking your ownhomework. Investors are also far better equipped to ask these questions thanbefore. ILPAreleasedupdatedreport­ ing and performance templates in January 2025, ap­ plying from Q1 2026, with the first performance templates due inQ1 2027.Add benchmark data and peernetworks,andtheinformationgapthatletthein­ dustrysellonIRRandbrandnameisclosing.Aman­ ager who talks happily about DPI and exits against marksistellingmesomething.Soisonewhochanges the subject back to IRR. The best managers are often full,soaccessremainstheconstraint,buttheedgehas shiftedfromknowingthingstojudgingwell,building relationships early andbeingwilling to sayno. What I’mactually doing Institutionsholdprivateequitypartly tomatch long­ dated liabilities and smooth their reportedvolatility. I have neither need. I just have the lockup. So the core of the portfolio is cheap, liquid index exposure, and every private commitment has to beat it on the money I actually reserve, after fees, with apremium on top for the lockup. I size commitments assuming distributions stay slow, because nobody sends me newmoney everymonth to cover capital calls.And I don’t haveaprivate equityallocation. I havea short list of managers, coinvestments and direct deals with a record of real cash returned andmarks I can trust, plus awillingness toskipa fundwhen the cash isn’t visible yet. If nobody makes the list in a given year, the right commitment is zero, and the index minds themoney in themeantime. Where the premiumis earned I believe in private equity. I just believe more in the managers who send cash back. The illiquidity pre­ miumisn’tearnedwhenIsignthesubscriptionagree­ ment,anditisn’tearnedwhenthequarterlyNAVgoes up.It’searnedwhenthecashlandsinmyaccountand beatswhattheindexwouldhavedonewiththesame money, after everyonehas beenpaid. For themedian fund, that test is failing right now. For the best man­ agers, it’s still being passed. My job is to knowwhich iswhich.DPIiswhereIstart,andthesecondarymar­ ket is howI check the rest. Private Equity : Showme the cash L es actifs nets des orga­ nismes de placement collectif (OPC) luxem­ bourgeois ont atteint 6.790,699milliards d’euros au 31 août 2026, contre 6.686,574milliards unmois plus tôt. La progression atteint 1,56%sur unmois et 14,12%sur douzemois. La hausse enregistrée en août représente 104,125 milliards d’euros. Elle résulte d’investisse­ ments nets en capital de 45,881 milliards d’euros et d’un effet positif desmarchés financiers de 58,244 milliards. Le nombre d’OPC s’est établi à 2.961, contre 2.960 en juillet. Parmi eux, 2.007 ont adopté une structure à compartiments, représentant 12.307 sousfonds. Avec les 954 entités à structure traditionnelle, le centre financier comptait 13.261 unités de fonds actives à la fin dumois. Les marchés d’actions ont pro­ gresséenaoût,malgré les tensions géopolitiquesliéesàl’Iranetlesin­ quiétudes concernant l’inflation, notamment en raisondesprix éle­ vés de l’énergie. Les résultats so­ lides des entreprises au deuxième trimestre,particulièrementdansle secteurtechnologique,ainsiqueles investissements dans les infra­ structures liées à l’intelligencearti­ ficielle,ontsoutenulesmarchés.La plupartdescatégoriesdefondsin­ vestis en actions ont enregistré de bonnes performancesmensuelles. Lesactionsjaponaises,asiatiqueset américaines ont bénéficié du re­ bond des valeurs technologiques après leur forte baisse en juillet. Les actions latinoaméricaines ont reculé, dans un contexte de craintes de ralentissement écono­ mique et d’incertitude politique au Brésil. Les OPC investis en actions ont enregistré des entrées nettes de capitaux dans toutes les catégories, à l’exception des actions asiatiques et latinoaméri­ caines. Sur les marchés obliga­ taires, la hausse des rendements a pesé sur les performances. Ceux­ ci ont atteint des niveaux inédits depuis plusieurs années, sur fond depréoccupationsconcernantl’in­ flation et d’anticipations d’un res­ serrementmonétaire. Lesmarchés ont réagi audiscours restrictifduprésidentdelaRéserve fédéraleaméricaine,KevinWarsh, lors du symposium de Jackson Hole. La plupart des catégories d’OPC obligataires ont enregistré des performances mensuelles né­ gatives.Ellesontnéanmoinstoutes bénéficiéd’investissementsnetsen capital positifs en août. Source : CSSF Les fonds luxembourgeois progressent ©VilledeLuxembourg :KDW WKH IXQG UHSRUWV 0\ ¼ P DIWHU \HDUV :KDW , DFWXDOO\ HDUQHG SHU \HDU )XQG UHWXUQLQJ [ QHW ,55 DERXW DERXW ¼ P DERXW )XQG UHWXUQLQJ [ QHW ,55 DERXW DERXW ¼ P DERXW ,QGH[ ERXJKW RQ GD\ RQH DERXW ¼ P