Private equity firms' "dry powder" surges to USD 789B - report

November 26
8:22 PM 2013

A Financial Times report revealed that private equity groups are keeping more money for acquisitions as deal volumes falls, compared to the period when leveraged buyouts was at its height. Citing data from research firm Preqin, the report said "dry powder" or unspent commitments of private equity funds increased to USD 789 billion. This represented a 12% rise compared to December last year.

At the height of private equity deals in 2007, private equity firms had USD 769 billion of unspent cash. In 2008, the funds kept USD 829 billion in "dry powder." This was the start of the financial crisis when deal volumes decreased by as much as 70%. Thomson Reuters data revealed that private equity firms undertook deals worth USD 776 billion in 2007 compared to only USD 310 billion done this year.

Citing a research done by Hamilton Lane, the report said the mixture of heightened fundraising and lowered volume of deals may lead to high levels of dry powder by the end of the year. The increased cash piles of private equity firms is a reflection of the fact that there are fewer deals worth going for which takes buyout groups a longer time to invest their money. Hamilton Lane is a private equity investor that monitors 2,000 funds.

However, the report said that the rising capital is also bolstered by the demand for private equity funds by institutional investors who had been long starved for yields. After the crash, buyout firms were able to obtain more capital from investors. This is partly due to the fact that private equity groups were able to give cash back to investors through initial public offerings and refinancing, the report said.

Hamilton Lane Chief Executive Mario Giannini told the Financial Times that 2013 is set to become the private equity industry's fourth largest year for fundraising of all time. However, he also said that the weak deal volume also shows that they were not in a hurry to invest.

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