Holding period

The holding period is the number of years between the sponsor's cheque going out and the exit proceeds coming back. Three to five years is the usual expectation, and the reason is the fund rather than the asset: a closed end fund has a finite life with an investment period inside it, so the clock on any single holding is partly set by when the fund was raised.

It matters arithmetically because IRR is a rate and MOIC is not. The same money multiple achieved faster is a better outcome, and an exit that slips by two years quietly destroys a large part of a headline return without a single operating number changing.

It also drives the financing decision, which is where interviewers usually take the question. A short expected hold makes prepayment flexibility dominant, so floating rate loans repayable at par beat fixed rate notes with years of call protection. A long hold reverses the argument, because locking a coupon for seven years removes a real risk. A buy and build sits somewhere else again, favouring a single lender who can amend quickly.

Be honest that the expectation is frequently wrong. Assets are held longer than planned when exit markets close, which is one of the reasons dividend recapitalisations and continuation vehicles exist, and it is why underwriting a deal that only works on a three year exit is a fragile position to be in.