Tue, Feb 25, 2020
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. PE/VC: Venture debt: Is it a loan? Is it equity? Is it an pportunity?, PE, VC investments in India hit all-time high in 2019[more]

    Venture debt: Is it a loan? Is it equity? Is it an pportunity? From Forbes: Venture Capital is usually the default option for fast-growth startups looking for a cash injection, thanks to our willingness to take risks in return for equity, and with no need to pay anything back - at least

  2. Other Voices: Evolution of shrinking hedge fund fees - what do investors and managers need to know?[more]

    By Don Steinbrugge, Founder and CEO, Agecroft Partners (DonSteinbrugge@agecroftpartners.com): Hedge funds fees remain under extreme pressure across the industry. This strong trend is driven by declining return expectations from investors, inc

  3. COVID-19: Investors track ships, chase rumours to get edge on COVID-19 risks, Coronavirus risk puts the bull run on pause, China was wise to let markets stumble[more]

    Investors track ships, chase rumours to get edge on COVID-19 risks From Reuters: As investors crunch numbers to determine how the coronavirus will hit China's economy, hedge fund manager Nathaniel Polachek has tied much of his outlook to the fate of a ship anchored near Weihai, China.

  4. Bruce Berkowitz is back!, Coatue's new quant fund lost money in the fourth quarter[more]

    Bruce Berkowitz is back! From Institutional Investor: Famed value investor Bruce Berkowitz has hit hard times over the past decade, with big bets on losers like Eddie Lampert's Sears Holdings. In fact, over the past 10 years, his Fairholme Fund's annualized return is only 4.89 percent -

  5. Are all ESG Indexes as green as you want them to be?[more]

    From Beyond Investing: When Laurence Fink, chief executive of BlackRock, with nearly US$7 trillion under management, vows to put sustainability at the core of the firm's new investment approach, markets and investors sit up and liste