The global private equity industry raised a record $453 billion from investors in 2017, leaving it with more than $1 trillion to pour into companies and new business ventures, data from industry tracker Preqin showed.
The figures underscore the extent to which large institutional investors, as well as family offices, are placing a growing portion of their money with leveraged buyout firms, venture capital groups and growth equity funds, which are promising returns that beat the wider stock market.
The money raised in 2017 surpassed the previous landmark of $414 billion set in 2007.
However, there were a quarter fewer new private equity funds launched last year than in 2016, with fundraising boosted by so-called mega buyout funds, defined by Preqin as having assets of at least $4.5 billion.
Chief amount these funds was Apollo Global Management LLC’s $24.6 billion Investment Fund IX, the largest private equity fund ever launched.
The buoyant fundraising market has fostered fierce competition for deals to put investment capital to work, driving up acquisition prices that can erode potential returns.
“Entry prices for assets remain very high, and with so much available capital competing for deals, this will only increase the challenge for fund managers looking to deploy capital in 2018,” a Preqin analyst wrote.
Nevertheless, David Rubenstein, co-founder and co-executive chairman of Carlyle Group LP, one of the largest private equity firms, has expressed confidence about the industry’s ability to put new money to work.
“For the last 15 or 20 years, very often, before firms like ours were publicly traded even, people were worried about whether you could deploy this capital,” Rubenstein said at a Goldman Sachs Group Inc conference last month. “Now it turns out that the capital can be deployed.”
His confidence stems from what he described as investors’ willingness to accept returns in the mid-teens as opposed to at least 20 percent in the past.
Private equity firms are also showing an increasing appetite for taking non-controlling positions in companies, which expands the field of possible investments.
In addition, Rubenstein said firms are making more investments outside of the United States, while putting a greater focus on improving the operational performance of portfolio companies, which should increase their re-sale value.