Over the past decade, the private equity industry has been through the throes of volatility and change. It began, in 2006, with the largest deal-making boom in the history of the industry.
- By 2015, Limited partners (LPs) enjoyed a fifth consecutive year when distributions outpaced capital calls, generating strong net positive cash flows. Their response: substantial increases in allocations & a renewed push to cycle money back into PE, historically the best-performing asset class in most LP portfolios. Since 2013, PE funds raised $500 billion annually worldwide, and uninvested dry powder today stands at a record $1.3 trillion. The past year saw the best environment for fund-raising since the precrash boom.
- The $175 billion that General partners (GPs) attracted for commitments in new buyout funds came in 11% below the amount GPs had raised in 2014. Despite this, new PE fund-raising encountered the best conditions in years. PE funds are closing faster, and the percentage of funds that hit or exceeded their fund-raising targets was higher in 2015 than at any time since the pre crisis boom of 2007.
- On the investment front, reported buyout deal value totaled $282 billion globally—the strongest year since the global financial crisis—as dry powder increased to a near-record $460 billion. Asset valuations, already high as 2015 began, rose to 10.1 times EBITDA in the US. Multiples in Europe dipped slightly but remained near all-time highs. The second half of the year brought increased turmoil to the debt markets, as spreads on leveraged loans increased.
- At $422 billion, buyout-backed exits were just shy of their all-time peak, as GPs completed sales of older vintage fund holdings. Exit activity was robust across all major channels, led by sales to corporate buyers, who accounted for more than $275 billion in asset sales last year. Recent investment activity, far below that of the peak period between 2005 and 2010, portends a falloff in exit activity over the coming five years.
- Despite turbulent public markets, private equity continued to post strong returns relative to alternative asset classes. Top-quartile funds are widening their lead over median fund returns for the 2008 and 2009 vintages now coming to realization.
Source: - Bain & Company (Global Private Equity Report 2016)