Bain & Company says the private equity industry delivered big news in 2014 after a waiting period of almost five years.
Hugh MacArthur, head of global private equity said, this flood of capital will have knock-on effects that raise new challenges for investors in 2015 and beyond.
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“The dramatic increase in exits marks the fourth consecutive year distributions have outpaced capital calls for the LP community,” said MacArthur.
“As a result, LPs looking to maintain or increase their exposure to their highest returning asset class made 2014 another strong year for fund-raising.”
Exits from buyouts in the private equity space exceeded 450 billion US dollars, surpassing the all-time high by a wide margin.
“The flow of so much capital came as a welcome relief to general partners (GPs) and limited partners (LPs) alike and has infused the industry with new confidence that returns from holdings acquired during the peak investment years will end up better than most industry pundits feared,” said the Global Private Equity Report 2015.
According to the report, top funds attracted fresh capital very rapidly, as huge amounts of money chased the same top-quartile performers.
“Most were oversubscribed and hit hard caps. So, where is the extra capital going? Some of the overflow is cascading into other funds, and some is even going into LPs’ own direct investment programs.”
The report added that by the end of last year, freshly committed dry powder hit a global record of 1.2 trillion US dollars, including 452 billion US dollars earmarked for buyouts alone.
However, the report says, one thing that did not change much in 2014 was the always limited supply of companies to buy; it has remained relatively constant as the mountain of capital pursuing these companies has grown.
“Supported by a continued abundance of low-cost debt and high valuations for comparable public companies in most markets, more PE money chasing the same assets has led to stubbornly high pricing," read the group's report.
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“The forces that are driving up valuations are structural and very difficult to change. The challenge of how to make money investing in PE has never been greater.”
Bain & Company added that with the results in for 2014, the characteristics of this remarkably durable private equity rebound have come into sharper focus.
“It is now clear that PE has been riding the waves of a world awash in capital that shows no signs of breaking anytime soon,” said the company.