Discounts deepen as private equity valuations tighten

The narrative that private equity valuations are understated by design has long been a cornerstone of investor confidence in the asset class. But new research from Barwon Investment Partners suggests this assumption may no longer hold.

In a study of more than 300 private equity exits from listed portfolios since 2013, Barwon found that average exit ‘uplifts’ – defined as the premium realised when an asset is sold above its last reported value – have dropped significantly, from a historical norm of 30 per cent to just 10 per cent since 2013.

According to Bob Liu, portfolio manager of Barwon’s Global Listed Private Equity Fund, the trend reflects deeper changes within the private equity ecosystem. “Historically, exit uplifts supported the idea that net asset values (NAVs) were conservative, and that investors could rely on a premium at the point of sale,” Liu says.

“But we’re now seeing a more responsive valuation framework, with market feedback increasingly embedded in carrying values ahead of exit.”

This shift is being driven by both cyclical and structural forces. On the transactional side, deal processes are taking longer to complete, which allows asset managers to adjust valuations before a deal closes.

At the same time, the nature of exits is evolving. Full cash sales are now often replaced by continuation vehicles (new funds created by private equity firms to allow them to hold on to high-performing assets beyond the original fund’s life), equity rollovers, or partial realisations. These are all structures that reduce the need, or incentive to push for maximum price at the point of exit.

“These deal formats typically involve the manager retaining a material stake in the new entity or reinvesting additional capital,” Liu explains. “When that’s the case, the priority shifts from maximising the one-off return to maintaining long-term alignment with the asset.”

Alongside these trends is the growing presence of ‘semi-liquidity’ private equity funds, which offer redemption features and must meet more frequent valuation and compliance obligations. This has introduced stronger scrutiny on how portfolios are marked, particularly for managers whose performance fees are calculated based on NAV.

“There’s a growing expectation that valuations be up-to-date, defensive and audible,” Liu says. “That’s healthy for the market, but it naturally narrows the gap between carrying value and realisable value.”

Despite this shift, Barwon remains constructive on the outlook for listed private equity. The firm points out that many listed private equity securities are still trading at meaningful discounts to their reported NAVs, currently averaging about 25 per cent.

For investors, this represents a sizeable valuation buffer and a potential source of alpha.

“It’s important to remember that while the nature of the uplift is changing, the opportunity set remains strong,” says. These discounts offer a margin of safety, and they’re particularly attractive for investors who are seeking diversified private equity exposure with the liquidity of public markets.”

The listed private equity space continues to evolve, offering investors a way to access private markets with the liquidity and transparency of listed structures. Strategies in this space typically provide diversified exposure across global private equity names, spanning buyouts, private debt, growth equity and venture capital while retaining the benefits of daily pricing and liquidity.

As the sector matures, the focus is increasingly on underlying asset quality, the resilience of business models, and persistent discounts to reported NAVs. According to Liu these are the metrics that matter most in the current landscape.

James Dunn

James is an experienced senior journalist and editor of The Inside Network's publications.