The private equity industry is on a spending spree like never before.
Buyout barons Blackstone Group Inc., Apollo Global Management Inc., KKR & Co. and others account for a record 30% of global transactions this year, with deal flow and fundraising close to all-time highs.
Investors are flush with cash and looking to put the money to work. In the U.S., a private equity consortium recently announced one of the biggest leveraged buyouts of all time. And in the U.K., PE funds have been at their busiest since the financial crisis, targeting household names including grocery chain Wm Morrison Supermarkets Plc. By mid-2021, the sector had amassed a record $3.3 trillion of unspent capital, including $1 trillion held by buyout funds, giving it significant fire power for fresh acquisitions.
“Lots of funding and investment opportunities have created a real boom in private equity,” said Meziane Lasfer, a professor of finance and researcher on private equity at Bayes Business School in London. “The more PE firms take over companies, the more they grow, the more cash they can extract from their investments, the more opportunities they can take.”
The industry’s success, however, is drawing greater scrutiny from authorities across the globe, potentially limiting future returns.
Track Record
The industry has nearly tripled in size since the start of 2011. Combining equity deal value, exit value, and fundraising, the sector is on track to top $1 trillion by year-end, Hugh MacArthur, Head of Global Private Equity at Bain & Co, wrote in July.
While critics say managers simply extract as much cash as possible from highly leveraged and vulnerable companies, fans like to highlight the sector’s track record of growing businesses while outperforming equities. The industry’s performance is hard to measure. Academic research on this point is mixed and there’s no agreement among investors on a standard metric.
The money flows show little sign of slowing down. Private equity is now starting to expand into the retail market by rolling out products for household investors in the hope of tapping a savings pool worth upwards of $74 trillion.
New Records
The biggest buyout names have moved into credit, real estate, infrastructure and other areas, leading to new records in fund raising.
New York-based KKR alone raised a record $59 billion in the second quarter across its various private market strategies. Carlyle Group Inc. is seeking to raise as much as $27 billion for its latest flagship fund, in what would be the largest-ever private equity pool.