Preqin data shows that private equity firms – in particular buyout fund managers - are currently sitting on a large amount of capital. There is an estimated $1.07 trillion in dry powder available globally, with around half of this total at the disposal of buyout firms.
As of October 2009, there is currently an estimated $513.9 billion of dry powder at the disposal of buyout firms, making it by far the fund type with the largest amount of capital available to invest at the moment. This is followed by an estimated $189 billion of dry powder currently available to private equity real estate firms, and an estimated $155 billion of dry powder currently at the disposal of venture capital firms.
In addition, distressed private equity firms currently hold an estimated $43.8 billion in dry powder, and there is an estimated $40.2 billion of dry powder at the disposal of mezzanine firms as of October 2009. The remaining $132.1 billion of dry powder currently available across the private equity industry globally is at the disposal of other fund types, such as infrastructure and balanced strategy firms.
These levels of dry powder represent the largest amount of capital ever at the disposal of private equity fund managers, and combined with a slowdown in private equity fundraising (highlighted by our Q3 Fundraising Update), indicates that there has been a recent break in activity across the private equity industry.
A mixture of market conditions help explain this break in activity, with the crisis in the banking sector making it difficult for buyout firms, and private equity firms in general, to obtain the leverage levels from banks that were provided to fuel deal activity in the 2005-2007 era.
In addition, investors in private equity funds have been affected by the financial crisis, forcing them to reduce their exposure to the private equity industry, which in turn has sent fundraising levels into decline across private equity. The financial crisis pushed valuations down greatly, and despite the recent resurgence in the stock market and company valuations, these valuations are still much lower than the pre-credit crunch era.
With large amounts of capital at the disposal of private equity firms, and company valuations increasing in recent weeks, a boom in the private equity sector could well be likely once the banking sector returns to a healthy state.
For more information on current and historical dry powder levels across fund types, regions, and across fund sizes, please see our Fund Manager Profiles product.