Assets under management in private equity sector grows to $2.5 trillion

07 March 2017 4 min. read
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The private equity industry has enjoyed another year of mammoth investment levels, valued at $716 billion on total deal volume of 17,000. Both value and volume have dipped however, as competition in the industry increased and the number of quality targets decreased. The industry's assets under management have hit almost $2.5 trillion, with buyouts, the lion's share, at close to $1.5 trillion.
The private equity (PE) industry has, since 2008, seen increased activity on the back of both the exiting of stock acquired prior to the crisis, and the acquisition of new stock across global markets. In a new report from McKinsey & Company, titled ‘A routinely exceptional year’, the consulting firm explores what has and has not changed in the industry in recent years, as well as its future outlook.

Private equity deal activity declined in 2016

Activity in the private equity sector has increase significantly since 2010, follow a low point in 2009 as the full effects of the financial crisis made themselves felt across the globe. In 2015 total deal value in the segment hit $786 billion and total deal volume reached a peak of more than 22,000 transactions. Deal value in 2015 came closest to the peak that appeared just prior to the financial crisis, when deal value surpassed a trillion dollars in a single year.

Private markets continue to attract new entrants

The dip in activity in 2016, as invested value fell to $716 billion and total volume to 17,000, is, according to the firm, the result of two key factors affecting the wider industry. The first is that the number of private equity managers has continued its increase, up 3% on 2015, with growth of 2.3% during the previous five-year period. The increase in entrants has increased competition for targets, which has in turn seen the median EBITDA multiple on buyout deals rise from 8.1 times in 2015 to about 9.3 today. The second is that the number of quality targets, including startups, too has receded. The firm’s analysis finds that the number of stocks trending below the then-current buyout multiple has fallen from 68% in 2008 to 25% in 2016.

Fundraising remains healthy

While the number of deals have decreased on the back of competition and a lack of quality targets, PE firms remain well funded for deal activity, raising around $300 billion in 2016, up 0.7% on the year previous. Fundraising has remained relatively easy for companies with the global economy still awash with low cost money. The industry also has a shadow component, in which additional large amounts of capital is tied up – one estimate by Triago forecasts the value at $188 billion in 2016, around $27 billion more than in the year previous.

Assets under management in private markets now total $4.7 trillion

The recent boom in funds, as well as a period of a glut in quality targets, has resulted in the assets under management in the industry rapidly expanding. In 2016, the total reached almost $2.5 trillion in PE, growing 8.5% on the previous twelve months, and with a CAGR of 6.8% between 2010 and 2015. While acquisitions are noted as the primary factor in driving growth within the sector; capital gains too played a role, as assets appreciated in value.

North America remains the largest market for almost all segments in the PE sphere, with $827 billion of the total $1.4 trillion in assets held in buy-outs, while venture capital holds $294 billion in assets of the total of $524 billion in assets. Europe has a much smaller segment of the venture capital pie, at $70 billion of the total, while in the buyout segment PE firms hold around $469 billion in investments in the region. The growth of assets was particularly marked in the rest of the world, which saw $192 billion in growth, compared to $89 billion and $34 billion in North America and Europe respectively.