The coronavirus-driven stock-market rout is forcing private-equity firms to make tough calls about how much their investments are actually worth, the Wall Street Journal reported. Worldwide lockdowns and disruptions caused by the virus have hit public markets hard, erasing almost 20 percent of the value of the S&P 500 index in the first quarter of the year. Private-equity firms often boast that the value of their investments is protected from wild swings in stock prices because of their long-term investment horizon and the fact their companies aren’t traded publicly, which offers insulation from market panics and fire sales. But firms have to provide their investors with quarterly estimates of how much their holdings are worth. Most funds are required to report their value as of March 31, so firms are now struggling to assess how much the coronavirus pandemic has affected their portfolios. Although the valuation hit will vary by sector, firms need to consider the impact on the value of every one of their portfolio companies, said Daniel DiDomenico, a senior managing director with advisory firm Murray Devine & Co., which advises private-equity firms on investment valuations. One estimate suggests the value of private-equity investments has been hit even harder than the broader stock market because the deals typically involve high amounts of leverage. Index company MSCI Inc. estimated last week that the value of large U.S. buyouts had declined 35 percent from their high point in the first quarter, based on data from Burgiss Group LLC.
