Fund managers have quite a bit of private capital available to deploy, to the tune of US$2.1 trillion as of the end of June 2018, according to a new report from Prequin.
For now, most of that private capital dry powder is still eyeing North American assets, although in recent years that has been on the decline, according to the report. Having sat at 62 per cent in 2000, the region has given up some of its dominance, with 55 per cent of private capital dry powder targeting North America in 2018. A slow but steadily increasing interest in Asia means the region now accounts for 18 per cent overall private capital dry powder, up from nine per cent in 2006.
“Certainly, the growth of capital earmarked for Asia is a strong sign of the industry’s development in the region, it may also be in part responsible for the increasing concentration of capital among private equity funds: while the private equity and venture capital industries in Asia are robust, other asset classes such as private debt or natural resources have yet to build much of a foothold in the region,” said Richard Stus, head of private capital research at Prequin, in a press release.
While private equity saw a diminishing proportion of private capital dry powder between 2006 and 2013, under pressure from the growing prominence of private debt and infrastructure, this trend has reversed in the last five years, the report found. Currently, private equity accounts for 58 per cent of all private capital dry powder.
“While $2 trillion in capital waiting to be deployed is a notable landmark for the private capital industry, concerns that fund managers are stockpiling capital without disbursing it may be overblown,” said Stus. “Deal activity is up in most asset classes, and the ratio of available capital to called-up capital is flat or falling – in essence, although dry powder is climbing, the rate of spending is climbing faster. In this context, burgeoning dry powder can be taken as a sign of an expanding and diversifying industry rather than one unable to put capital to work.”
Venture capital is also on the rebound. Having accounted for 32 per cent of all private equity dry powder at the height of the dotcom bubble in 2000, it fell to 13 per cent by 2013. Since then, it has rebounded, now accounting for about a fifth of all available capital in the private equity industry.