Twenty-sixteen was not a record year in private equity, due to high target prices and a dearth of exits, yet the fund-raising environment proved to be quite stable.
According to a Deloitte report on private equity trends in 2016, firms are looking for ways to be more responsive to the needs of their clients while also becoming more flexible, by finding alternatives to traditional structures as competition gets tougher for both managers and investors. For 2016, the industry’s total assets under management (AUM) were valued at $2.49 trillion which is an all-time high, and the signs point to another strong year in 2017.
$589 billion in capital raised by PE firms globally
According to Bain & Company, fund raising is as good as it can be at the moment in an industry that is facing significant challenges.
Worldwide, PE firms raised $589 billion in capital, which was 2% less than in 2015. More than 2,500 PE funds sought to raise $890 billion at the start of 2016 in various geographies. The market was competitive as capital sought in 2016 exceeded capital raised by 2.4 times. New investment was somewhat slow, with North American deal count decreasing by 24%, Europe down by 11% and Asia down 14%. This may be due to the volatility in these markets earlier in the year, caused by the drop in oil prices and the uncertainty in Europe regarding Brexit. Preqin conducted a survey in 2016 to measure the expectations of GPs and found that 40% said it will be more difficult to find opportunities and close enough good deals in the short term. In terms of sectors, hi-tech continues to attract the most interest for private equity, followed by industrials, real estate, and media & entertainment.
Since 2010, the technology sector has consistently closed between 120 and 170 deals globally each year, reports Bain & Company. Although things might seem steady as regards fundraising, it could be tougher to keep in line with exits. Many GPs doubt that the current level of exits in the industry is sustainable as pipelines continue to shrink. Bain & Company reported that the aggregate value of buyout-backed exits globally has dropped 23% in value and 19% in count since 2015. North America faced many political changes in the year and, perhaps as a result, suffered a 17% decline in exit count even though they still had the biggest numbers of all the regions. In Europe exit counts were down 19%, as investors struggled to get a fair price for assets. As for the Asia-Pacific region, exit counts also fell, by 18%, coming in at $36 billion. The decline in the number of exits should not come as a surprise as the financial crisis put the brakes on a lot of portfolios that were started between 2005 and 2008.
238 buyout funds in 2016 raising $221 billion
According to Bain & Company, buyout funds reached a total of 238 in 2016 and raised $221 billion. In fact, in 2016 many top-performing, large buyout firms returned to the market to raise capital and with great success. Funds focused on North America experienced a slight uptick of 3%, to $106 billion. Those targeting buyouts in Western Europe showed no signs of slowing, with a 16% rise for the year, to $53 billion according to Preqin. In fact many investors believe that the region has a lot of potential to generate future returns. A lot of firms are expanding their geographical footprint as many China-focused funds come into the spotlight. Permira, a UK investor, closed its fund at almost $8 billion in 2016 and opened its first mainland China office in 2015.
$2.49 trillion in private capital assets under management.
Although things might seem to be growing in the fundraising field, the private equity industry is highly likely to be entering a phase of maturity in 2017.