Total private equity industry dry powder, defined as uncalled capital commitments, increased from $1.07tn at the end of 2013 to $1.1tn in December 2014. As can be seen in the chart below, this surpasses the year-end levels prior to the financial crisis. The most recent figure stands at $1.22tn as of March 2015, an 11% increase on December 2014. With growing concerns surrounding the record levels of dry powder, this blog examines the changing composition of uncalled capital.
The increase in total industry dry powder from December to March comprises increases in dry powder across all regions. North America- and Europe-focused funds experienced increases in total dry powder of 9% and 10% respectively, while Asia and Rest of World experienced dry powder growth of 19% and 21% respectively. The composition of global dry powder is changing. A decade ago, North America was responsible for 61% of global dry powder; in March 2015, this stands at 56%. This difference in proportion has been absorbed largely by Asia-focused funds, which have seen an increase in total dry powder from 8% in December 2004 to 14% in March 2015. Europe’s proportion has fallen by two percentage points to 24%, while Rest of World’s proportion has increased by two percentage points to 6% of total dry powder.
The highest proportion of private equity dry powder is held by buyout funds ($459.2bn), representing 38% of the asset class total. However, buyout’s proportion of total dry powder has decreased from 2005, when it represented 46% of total dry powder. While there has been a decline in buyout dry powder, there has been an increase in the dry powder of both infrastructure and natural resources funds. Infrastructure dry powder has increased from 3% of total dry powder in 2005 to 9% in March 2015, and natural resources dry powder has increased its share from 2% to 5% over the same period. The proportion of dry powder attributable to venture capital funds has fallen from 17% to 11% of total dry powder.
With growing valuations and increasing earnings multiples being paid for private equity investments, it will be interesting to see how the composition of dry powder continues to change over the coming 12 months, including whether more dry powder will be devoted to emerging markets and niche fund types.