Private equity funds have more dry powder for acquisitions - report

December 8
9:25 PM 2013

A report from Financial Times said private equity funds were getting more money from institutional investors as they forecast improvement in dealmaking to happen in the next couple of years. The resurgence has helped buyout firms to get more dry powder for acquisitions compared to their firepower at the height of the leveraged buyout boom.

Citing a survey done by London-based private equity group Coller Capital, the report said over half of the investors surveyed predict an acceleration of the distributions from invested private equity funds in the next 18 months. An estimated 40% of investors who are limited partners believe that the rate of new investments will rise as opposed to 30% who believe it will stagnate. Only 8% think that the pace of new investments will slow down.

Coller Capital Founder and Chief Investment Officer Jeremy Coller said the consistent returns given by the industry are fueling the allocations. He told the Financial Times, "In a low-return world, 86 per cent of limited partners are forecasting annual net returns of 11 per cent and more from their private equity portfolios, and a quarter are expecting net returns of 16 per cent or more."

Data gathered by Preqin revealed that unspent investor pledges rose to USD 789 billion this year, the report said. This represented a 12% increase since December last year and happened after a decline posted in the past four years. This compared with the unspent cash of USD 769 billion when deal volumes were at its peak in 2007.

The poll by Coller also showed that institutional investors are not concerned about the current trend of increased dividend recapitalizations or a strategy which consists of putting more debt to a firm to be able to finance a dividend payment to its owners. The survey said only one-fourth or a quarter of limited partners believe that the current level of dividend recaps is too much as opposed to the two-thirds believe it is appropriate. 

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