Data from Preqin shows that private equity is sitting on the largest amount of dry-powder ever raised over a year-long period in history. The dry-powder, meaning money that is pledged but not invested, has ballooned to $1.074 trillion, overtaking the previous record of $1.067 trillion that was accumulated until the end of 2008. The dry powder near the close of 2013 is up 14% compared to 2012.
Read about Paul Singer’s hedge fund raising new capital.
Stagnant deal volume in private equity
Preqin also points out that despite the excessive amount of fundraising, deal volume in private equity industry has more or less stayed the same. This implies that even though the industry has many eager investors, these firms are not finding it as easy to find and invest in attractive opportunities. The aggregate value of buyout investments barely moved in the past three years; it amounted to $264.4 billion in 2011, $263.8 billion in 2012 and $265.8 billion in 2013 YTD. Preqin notes in their analysis,
“As many economies go through periods of stabilization, and experience continued growth, 2014 may present more opportunities for private equity firms to deploy their capital, and we may see an reduction in the level of dry powder.”
Preqin also finds that while distressed private equity and growth dry-powder has increased compared to pre-crisis levels, the capital available for exclusive use in buyout opportunities came at $397 billion, down 18% compared to the funds that were available at the end of 2008. Pledged funds for distressed PE are at $74 billion compared to $56 billion in 2008, whereas growth dry powder has increased to $76 billion compared to $46 billion in 2008.
Fortress and KKR ink new deals
Speaking of low deal volume and lack of buyout opportunities, Fortress Investment Group LLC (NYSE:FIG) is closing in on the acquisition of servicing advances from Nationstar Mortgage LLC, a subsidiary of Nationstar Mortgage Holdings Inc (NYSE:NSM). The deal is fronted by FIG’s permanent capital vehicle, New Residential Investment Corp and would amount to $3.2 billion. FIG owns 75% shares of Nationstar Mortgage Holdings Inc (NYSE:NSM), RBC Capital Markets’ Bluent Oczan expects that the acquisition will add to Fortress’ income, as New Residential Corp pays performance and management fees to its parent.
At the same time KKR & Co. L.P. (NYSE:KKR) is finalizing the acquisition of KKR Financial Holdings LLC (NYSE: KFN) in a $2.6 billion buy-out. The deal is expected to bring long-term benefits for the private equity firm with payments from KFN’s earnings. Morgan Stanley (NYSE:MS)’s Melissa Bourdon said in a note that this will help KKR & Co. L.P. (NYSE:KKR) in diversifying its portfolio away from private equity and will also provide it with a stronger balance sheet. This would help KKR in launching new funds and pursue further M&A, which will eventually attract new clients and bring in fee-paying AuM.