Business

Private Equity Industry Growth Fueled By Record Distributions

Private Equity Industry Growth Fueled By Record Distributions by Preqin

Funds globally are set for the fifth consecutive year of positive net cash flows as investor appetite continues to rise

The latest data from Preqin examines the recent record levels of capital distributed to investors by private equity funds, which have seen positive annual net cash flows to investors since 2011 totalling $428bn. North America-based funds distributed $184bn more to investors in 2014 than they called up, a post-Global Financial Crisis (GFC) record. At the same time, Europe-based private equity funds have seen positive cash flows of $126bn to investors in the period 2013 – H1 2015, while funds in Asia also saw net cash flows to investors of $4bn in 2014, and $15bn in H1 2015.

Private Equity Distributions

Private Equity Distributions

It is perhaps unsurprising that investor appetite for various regions reflects the differing levels of capital being returned to them; the majority of investors (71%) see North America, which has made the highest distributions, as presenting the best opportunities in 2016, up from 60% in 2015. Under half (49%) of investors surveyed by Preqin at the end of 2015 cited Europe as offering the best opportunities in the year ahead, while a fifth considered Asia to present the best investment market openings.

Private Equity Distributions

Private Equity Distributions

Other Private Equity Cash Flow Facts:

  • Fundraising: Since distributions started exceeding capital calls, the fundraising process has become quicker and more successful. On average, funds closed in 2013 took 20 months to raise 97% of their target capital, while funds closed in 2015 were in market for 18.5 months and achieved 106% of their target.
  • Fundraising by Region: North America-based funds have increased their proportion of global private equity fundraising in recent years. Vehicles based in the region accounted for 59% of aggregate capital raised globally in 2015, up from 43% in 2012.
  • Holding Periods: Distributions have been fuelled by a favourable exit environment, as managers have been able to realize GFC-era investments. The average holding period of buyout-backed portfolio companies in North America fell from 6.0 years for companies exited in 2014 to 5.6 years for companies exited in 2015.
  • Deal/Exit Environment: The shifting balance between capital calls and distributions is also reflected in the ratio of buyout-backed deals and exits. 2009 saw 3.2 private equity buyout-backed deals per exit, but only 2.2 deals for each exit in 2015.

Private Equity Distributions

Private Equity Distributions

Comment:

“The private equity industry as a whole has seen distributions to investors exceed the capital calls made by fund managers in each year since 2011, with 2014 marking the highest level of net capital distributed since the Global Financial Crisis. This has been driven in a large part by funds based in North America, and consequently an increased proportion of capital has been allocated to the region as investors cite it as offering the best opportunities. However, across all regions private equity funds are returning unprecedented amounts of capital back to investors.

Distributions have been aided by the favourable exit environment, which has allowed fund managers to realize assets acquired during the GFC. Although total exit value from buyout-backed companies in 2015 did not match the levels seen in 2014, the indication is that full-year cash flow figures will show further positive net capital flows to investors. It will be interesting to see if fund managers can maintain this in 2016.”

Christopher Elvin – Head of Private Equity Products, Preqin