PE Investment: 2017 and Forward

Investors saw very positive results in private markets for FY 2017; the year marked a record year for fundraising in private markets, with over $750 billion globally raised. PE and private debt grew by 11 percent and 10 percent respectively. Most growth derived from funds with AUM of over $5 billion. Notably, ignoring megafunds, the market activity from all other funds decreased. As numbers are finalizing for the year of 2018, investors see funds raised thus far down about 40%, while aggregate capital raised within PE is down about 30%. Overall operating metrics for the industry appear healthy, with dry powder to deal volume at a healthy ratio and stable over time. Interestingly enough, pension funds are increasingly allocating to the asset class year over year, as well as sovereign wealth funds who are becoming more and more important. Investors should see co-investment deals increasing over the next few years.

On overall economic news and activity, it appears as if greater degree of discipline is taking place than during the run up to historic financial crises. Rather than underwriting at any cost and blowing up deal multiples, most of the PE managers are hedging towards multiples contraction.

Keith Knutsson of Integrale Advisors commented, “Even if results for FY 2018 might not appear as strong as the previous year, I think the Private Equity market is strong going forward. One thing investors should keep an eye out for is whether the decrease in deal activity continues, and dry powder increases at similar rate.”