Record PE Growth Spurred by More than $1 Trillion in Dry Powder

Private equity AUM rises to more than $3 trillion.

The private equity industry managed more than $3.06 trillion at the end of 2017, a 20% rise from $2.56 trillion the previous year, and the highest rate of annual growth ever recorded by data and intelligence provider Preqin.

Preqin said dry powder was a key factor in the growth, referring to assets that have been raised, but not yet invested. The amount of dry powder surpassed $1 trillion to a record $1.03 trillion as of the end of 2017, a 24% increase from the end of 2016, when it stood at $829 billion. By June, 2018, dry powder was up to $1.09 trillion.

“Strong fundraising in recent years paired with a challenging deal environment has resulted in dry powder levels reaching a record [in Q2],” said Christopher Elvin, Preqin’s head of private equity products, in the forward to the firm’s private equity and venture capital quarterly update. “While buyout deal activity did not outpace Q1 levels, the quarter nonetheless saw strong deal flow with KKR’s $9.9 billion acquisition of Envision Healthcare the largest deal announced in the quarter.”

Private equity fundraising slowed down in the second quarter as 230 funds reached a final close securing an aggregate $85 billion in capital, a 7% decline in number of funds, and a 4% decline in capital raised compared to the first quarter. However, because there has been “unprecedented fundraising” in recent times—more than $100 billion was raised each quarter between the fourth quarter of 2016 and the fourth quarter of 2017—overall activity was still considered healthy by historical standards.

For more stories like this, sign up for the CIO Alert daily newsletter.

Buyout exit activity increased in the second quarter after a year of decline, with 471 exits valued at a combined $103 billion, the highest exit value recorded since the third quarter of 2015, according to Preqin. The firm also said the unrealized value of invested assets held by fund managers rose 18% in 2017 to reach $2.04 trillion as of the end of December.

It was the seventh consecutive year in which private equity fund managers returned more capital to investors than they have called up, as managers distributed $466 billion to investors. However, the net flow of capital to investors fell to $36 billion in 2017, from $150 billion in 2016 as fund managers also called up a record $430 billion from investors.

Preqin also reported that the number of private equity funds has continued to grow, with a record 3,037 funds on the road at the start of the third quarter targeting $948 billion, a 52% rise in the number of funds raising capital compared to the same time last year, and a 40% increase in aggregate capital targeted.

Forty-four percent of all funds in market are targeting investment opportunities in North America, seeking 49% of all institutional capital targeted. The number of Asia-focused funds in the market has soared 159% to 985 funds in the third quarter from 380 funds during the same period in 2017, with aggregate capital targeted also up 63%. 

Tags: ,

«