Over the last few years private equity has grown enormously as an asset class and played an increasingly important role in M&A activity. Our research shows the sector has record assets under management – nearly $4 trillion – and that its “dry powder,” in other words the amount that it has available to invest, is also growing.
As the leading global provider of data and intelligence for all those involved in private equity and M&A, we’ve identified a number of key trends in the sector, some of which are currently underway, while others will unfold over the coming years.
One fundamentally important trend shows how, over the last few years, money has been flowing out of rather than into private equity. Until around 2012, private equity firms were calling up more cash from their investors to invest in companies than they were returning. Since 2013, though, the amount of capital distributed to investors has surpassed capital calls and has reached record levels, as fund managers have used favourable market conditions to exit many portfolio investments. This is, of course, good news for investors who are now seeing good returns on their investments.
Certainly private equity has been a good bet for investors. According to our research, taking a base line of 100 in 2000, the return with the S&P 500 Index would, for instance, be just over 200 by 2015. Across all private equity strategies, this return would be just over 300, but with buyout funds it rises to 400. Unsurprisingly, when we asked investors in June to reveal how satisfied they were with their investments, 35 per cent reported that private equity has “exceeded their expectations”; meanwhile only 13 per cent felt it has “fallen short of expectations”.
Now, with $1.3 trillion of dry powder in their pockets, private equity firms are looking for the right investment opportunities and this is good news for businesses of all sizes looking for capital. So private equity is serving both companies and investors well and will, we believe, continue to grow. But within this growth story, there are some interesting new trends emerging which investors, companies and those working within the M&A space should be aware of...
This is an extract from an article featured in Raconteur’s ‘M&A Outlook 2016’, published in The Times on 08 December 2015. Continue reading the article here.