By most markers, the private equity industry seems to have been a worrying period of decline – fundraising has well and truly withdrawn from the heights reached in 2017 and much of 2018, while both the buyout and venture capital deals markets have recorded fewer transactions and lower values in the first half of the year.
But investor appetite remains strong, and fund managers are upbeat about the prospects for the asset class. What, then, can explain the slowdown in activity? It is likely a combination of factors: China has moved past its recent flurry of record-setting funding rounds, which drove the high venture capital deal values of the past 18 months. North America and Europe have both seen a slowdown in buyout deal activity, possibly because of concerns over central bank policy and the continued pressure of high pricing. Finally, the unprecedented period of fundraising has pushed dry powder to a new high of $1.54tn as of the end of June, meaning that many investors have significant commitments yet to be deployed.
There are no simple solutions to any of these, meaning all these factors will likely continue to impact the asset class in the second half of the year. Private equity is certainly more difficult to navigate than ever, and with almost 4,000 funds seeking capital, the challenges are greater than ever for both for allocators and operators.
Long-term performance is strong, investor appetite is substantial and deal opportunities are certainly out there. But for investors and fund managers alike, it will require more intensive analysis, more granular insights and more sophisticated strategies to succeed in private equity than ever before.
For further in-depth analysis on fundraising, deals, performance and investor data from the quarter, download the newly-released Preqin Quarterly Update: Private Equity & Venture Capital, Q2 2019.
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