What Does PE’s Nearly $750B In Capital Overhang Foretell? by Garrett James Black, PitchBook
Through the end of 2015, the private equity industry in North America and Europe had an overhang of $749.4 billion. A plurality of that is concentrated in funds of the 2015 vintage, with the majority (55%) in funds closed over the past two years.
Note: Funds return data includes 2016 numbers from vehicles that have begun reporting but have not fully closed.
Value Partners Asia ex-Japan Equity Fund has delivered a 60.7% return since its inception three years ago. In comparison, the MSCI All Counties Asia (ex-Japan) index has returned just 34% over the same period. The fund, which targets what it calls the best-in-class companies in "growth-like" areas of the market, such as information technology and Read More
With such proportions, it’s clear that PE investors have more than enough capital to fuel typical investment cycles for some time. For the midterm, the heft of capital in 2012-2013 vintages will continue to contribute to the upward pressure on valuations for worthwhile targets currently in the market.
Both PE buyers and company sellers know that there’s more than enough capital to pay up for the right prospects, so even as dealmaking activity has softened overall amid investor caution, when opportunities do enter the running, things can grow inflated rather quickly. This state of affairs shall persist for some time as the buyout cycle winds slowly down.
With such a hoard of youthful dry powder, many PE funds are prepared for the onset of the next investment cycle, however, which will continue to see further deployment of niche strategies designed for a high-priced environment of varying quality—such as secondaries and lower-middle-market rollups.
Note: This column was previously published in The Lead Left.
For more PE fundraising data, don’t miss our free 1H 2016 Fundraising & Capital Overhang Report!