Global private equity war chest swells to record highs as new money pours in
Link copied to
As we cross the midway point of 2019, the good times are rolling in for global private equity markets.
Here at Stockhead’s Private-i section, we’ve focused most of our coverage on early-stage capital raisings for Australian companies. But occasionally, it’s still worth stepping back to look at some of the larger global trends in private markets.
And if recent data is anything to go by, it’s a good time to be a barbarian at the gate.
The world’s largest private equity firms currently have around $US2.5 trillion ($3.6 trillion) of capital to deploy — a record-high.
That figure easily eclipses levels of around $US1 trillion prior to the 2008 global financial crisis (GFC), which is when the dollar-value of leveraged buyout transactions last peaked.
And according to the Financial Times, leveraged buyout activity in the first half of this year reached $US256 billion — surpassing the level seen in the heady pre-GFC days of 2006.
At the big end of town, the marquee deals were led by PE giant Blackwater’s successful $US18.7 billion offer to buy the US real estate assets of Singapore-based investment firm GLP.
Closer to home, local private equity firm BGH Capital closed its first major deal in March with the $2.3 billion acquisition of (previously ASX-listed) education provider Navitas.
To raise all that money, the world’s biggest PE funds have been accepting investments from a steady stream of large pension funds, endowments and sovereign wealth funds.
And there’s plenty of capital to go around, as the post-GFC investment backdrop of low interest rates with steady gains in global stocks continues into its 11th year.
The 2019 rise in leveraged buyout activity — which climbed to the second highest level on record in the sixth months to June — has also been accompanied by a noticeable shift in the macroeconomic environment.
Led by the US Federal Reserve, the world’s central banks have reverted to a dovish tone, with many now forecasting rate cuts rather than hikes — at least those who don’t already have official cash rates set at zero per cent.
One such bank is the RBA, which will makes its policy announcement on Tuesday afternoon with markets forecasting a second rate cut in two months.
Amid a cautious outlook, some analysts have pointed to the record private equity inflows as evidence that firms are looking to lock up capital before it gets more difficult to raise in a possible economic downturn.
At the same time, global consulting firm Bain & Co highlighted evidence of a “fundamental shift” in its 2019 global private equity report.
Bain & Co’s head of global PE Hugh MacArthur said the shift could “drive a long-term trend toward much larger private capital (and private equity) opportunities vs. traditional public equity models”.
It also “portends a future in which a much larger share of capital flows into private markets”.
If that’s the case, key trends in private markets will be worth monitoring in the years to come.