Sun, Feb 18, 2018
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Private Equity Strategies

Data Snapshot: Private Equity Dry Powder Hits New Record

Thursday, March 02, 2017

With investors on the hunt for yield, PE remains a favored asset for institutional investors. Fundraising surged as limited partners (LPs) continued to recycle distributions into new capital commitments. Returns also had another strong showing, continuing to outperform public markets by a sizable gap over both short-term and long-term time horizons. Global buyout activity, on the other hand, declined amid a challenging deal-making environment.

A new report from Bain & Company shows that it is becoming harder for private equity to deploy its billions and still nd the kind of returns it is used to. In 2016, buyout-backed exits around the world dropped 23 percent in value and 19 percent in count from 2015 and fell even further from the record levels of 2014. But, asset sales of $328 billion in disclosed value from 984 deals actually constitutes an extremely strong run, helping the industry deliver its fourth-best year ever by value.

With nearly all of the pre-crisis deals exited, buyout rms are adjusting to a new normal with longer holding periods of about 5 years – up from the historical average of about 3.5-4 years. Bain expects this trend to continue in the medium term, as a result of high purchase prices and limited sources of market beta, requiring general partners (GPs) to roll up their sleeves and do the time- consuming work of creating value with their assets.


“Deals are undoubtedly hard to come by. On average, studies show that PE rms see less than 20 percent of deals relevant to them in their pipeline,” said Hugh MacArthur, who leads Bain’s Global Private Equity Practice.

According to MacArthur, when deals do materialize, they command high prices. And with an expected hold time of about 5 years, the margin of error for generating alpha and delivering acceptable returns to LPs has greatly narrowed. In response, GPs are codifying their battle-tested approaches – what they are good at, what has and has not created value, and where and how their funds have made money for investors – to build playbooks that consist of detailed, sequenced actions taken over time to maximize value from each investment.

But could this be as good as it gets? Many GPs are apprehensive that the industry cannot sustain the torrid pace of fund-raising for much longer. Bain expects that distributions will continue to outpace contributions and LP commitment to the PE asset class will stay strong. However, the fund-raising environment may not be as favorable in coming years, making it important for GPs tfocus on what makes them stand out from the pack.

 
This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies


Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Chenavari, a $5.4bn hedge fund, told investors it thinks 'we could experience a similar pattern as the 1987 crash'[more]

    From Businessinsider.com: A $5.4 billion hedge fund told clients markets could tumble just like they did in the 1987 crash. In a February 14 letter to clients, London-based Chenavari Investment Managers warned about current market conditions. From the letter (emphasis added): "Our view is that

  2. Active funds shone in selloff, just like they said they would[more]

    From Bloomberg.com: For years, it's been the same refrain. Don't bail on active management, you'll regret it when the market turns sour. And while the selloff that ripped through equities this month has been too short to prove anything, early returns suggest they had a point. Thanks to differentiate

  3. No place to hide: managed futures funds fall with stocks[more]

    From Barrons.com: Managed futures mutual funds haven't lived up to their billing of providing uncorrelated returns so far in 2018, continuing a disappointing multiyear stretch. The $10 billion AQR Managed Futures Strategy, the largest fund by a wide margin in the category, was down 2.75% year-to-dat

  4. Investing - Hedge fund Bridgewater makes $22 billion bet against European firms, Hedge funds Steadfast and Suvretta jump onto CSX in fourth quarter, Tepper's Appaloosa boosts Apple, Facebook as others bolt, Third Point buys Netflix and MGM, dumps Bank of America, Moore Capital bought Wynn Resorts, other casino stocks before Steve Wynn resigned[more]

    Hedge fund Bridgewater makes $22 billion bet against European firms From Reuters/USNews.com: Bridgewater has shown its hand in Europe with a $22 billion bet against some of the continent's biggest companies, filings reviewed by Reuters show, part of a bigger shift by the world's largest

  5. Funds Profiles - Brother-run hedge fund up 46% in 2017 says Kelly formula shows diversification is flawed, How a 6,000% profit on a single trade saved a small hedge fund from disaster[more]

    Brother-run hedge fund up 46% in 2017 says Kelly formula shows diversification is flawed From Valuewalk.com: When Jeremy and Michael Kahan consider the notion of diversification, the wince. With a return of 45.8% to end 2017, their stock-picking fund, North Peak Capital, successfully