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Alternative Market Briefing

Global dry powder expanded 11.2% YTD through August to $2.1tn

Wednesday, September 04, 2019

Laxman Pai, Opalesque Asia:

Industry dry powder, or uncalled investment capital, continues to grow for alternative investment managers amid elevated market multiples and increasing late-cycle behavior, such as loosening deal terms and structures.

However, diversity of assets under management (AUM), locked-up fee streams, variable costs structures, and solid liquidity profiles continue to underpin the Stable Outlooks for large, diversified alternative investment, Fitch Ratings says.

Dry powder for Fitch-rated firms was up 18% YoY on June 30, 2019 to $387 billion. Global dry powder expanded 11.2% year-to-date through August to $2.1 trillion, with private equity (PE) buyout funds accounting for the largest share at 35% and growth funds increasing most rapidly at 23%, driven by investor demand in software and IT.

Returns from PE funds continue to outperform the S&P 500, driving sustained investor demand for PE strategies despite elevated deal valuations.

Still, limited partners LPs remain cautious about underlying investment valuations, with 73% of respondents believing that portfolio companies are overpriced, according to a recent survey by Preqin. Of LPs questioned, 74% believe the market is at the peak of the equity market cycle and 48% of investors believe a market correction will occur within 12 months.

Global PE fundraising continued to slow for the second straight year, although still remained above historical levels. That said, early 3Q19 activity......................

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