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Private equity industry closes 2013 with record highs of “dry powder”
This article speaks to a theme we’ve been echoing for a few years now — good companies for sale in today’s market will have significant interest from a wide range of buyers.
From the Venture Capital Post:
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Private equity industry closes 2013 with record highs of “dry powder”
By Nicel Jane Avellana
“Dry powder” of the worldwide private equity industry ended at record highs for 2013, the website Benefits Canada reported. “Dry powder” refers to capital that is already committed but has not been invested yet.
Citing data from Preqin, the report said the private equity industry posted “dry powder” worth $1.074 trillion as of December 2013. This was substantially higher than high of $1.067 billion which was recorded before the global financial crisis of 2008. The aggregate global private equity dry powder rose 14% in 2013, the report said.
Preqin said that the dry powder amount rose because even if fundraising in 2013 went up, the deal volume stayed relatively flat for the past three years. In 2011, the aggregate amount of buyout investments globally was pegged at $264.4 billion while in 2012, it was valued at $263.8 billion. Last year, the value was at $265.8 billion.
The report said that this has fueled concerns about the ability of private equity companies to invest all the capital raised from investors. Preqin Head of Private Equity Products Ignatius Fogarty said, “At this record level of dry powder and deflated deal market, investors are concerned that fund managers will still face challenges investing this growing capital base successfully going forward.” However, he noted that private equity firms may have a lot more opportunities to invest their capital and reduce the dry powder level since growth is forecasted to occur in many countries this year.
In a separate report on September 12, 2013, Benefits Canada cited another study done by US-based financial services firm SEI which said that good investment opportunities for private equity funds worldwide are in short supply due to the slow recovery from the financial meltdown. SEI was quoted in that report as saying, “Some 4,500 funds with an estimated total of $1 trillion in uncommitted assets are chasing a limited supply of opportunities.”
