Top Private Equity Firms Stacked with Dry Powder in 2020

PE firms in the US in 2020 are more equipped than ever in terms of investment potential. Firms managed under the two most powerful PE groups, namely, Carlyle Group LP and Blackstone Group Inc., together, possess a whopping $1.5 trillion as dry powder.

 

Preqin confirmed these figures in its December 2019 report. Get ready to witness a record number of M&A to happen this year compared to fairly low PE deals worth $450 billion last year.

 

Jason Thomas, global head (PE Research – Carlyle), said – “People from the PE community will feel much better about the geopolitical and economic outlook entering 2020 in comparison to what the related scenario was the last year”.

 

An Abundance of Dry Powder

 

Capital stack in PE at the end of 2019 made a Record

 

Investors in 2019 got inclined to PE to gain higher returns in the wake of the rise of index-tracking funds, low interest rates, and lacklustre hedge performance. A majority of companies that were earlier referred to as “leverage buyout shops” decided to accumulate the assets in response to the soaring valuations and the intense competition to grab the deals.

 

Logic Behind Top Private Equity Firms Not Spending the Cash on Hand in 2019

 

PE firms keeping the cash unspent throughout the last year were actually waiting for the right moment. Since the investment options were widening, and the new regions such as Japan were beginning to open in PE capital flows, the dry powder kept on accumulating.  

 

Huge Growth Expected in PE Deals This Year

 

PE firms declared $450 billion worth of deals through Dec. 26, 2019

 

However, the entire 2018 remained dull in terms of the number of high-worth PE deals witnessed, 2019’s figures were comparatively strong.

The biggest, or a record buyout offer of $70 billion from KKR (PE Group) to Walgreens Boots Alliance Inc. in November 2019 could come to fruition anytime this year. Besides, the largest PE deal last year that was officially confirmed amounted to $14 billion. It was the buyout of Zayo Group Holdings Inc., a fibre network company, by Stockholm-located PE firm EQT AB & Digital Colony Partners.

 

Experts Viewpoint on PE Deal Making in 2020

 

  • Dave Tayeh (Head of Private Equity in North America at Investcorp), said – “The cash on hand will empower the PE firms throughout the US to make more deals in 2020”.

 

  • In another statement given by Tayeh, he said – “There exist numerous tailwinds to empower deal-making in 2020 in the US. These comprise low rates, surety around Brexit, and the constantly-evolving technology disruptions across business verticals”.

 

Expected Downtrend in Fundraising

 

PE capital-raising delineated by fund vintage

 

  • While dry powder stock has stacked up to an all-time high, fundraising, on the other hand, has come down significantly since the pinnacle it obtained in 2017. The 2019 vintage funds amounted to a capital-raise of $465 billion as per Bloomberg reports.

 

  • Graham Elton, a private equity professional and chairman of Bain & Company’ PE business in the Middle East, Europe, and Africa, said – “We have already witnessed a saturation point in fundraising. The only firms and investors to suffer will be those having not raised funds in the last couple of years.”

 

  • EY’s global PE practice leader Andreas Saenz stated – “From a fundraising viewpoint, the hesitation among accomplished investors will be blown away this year in the wake of the inflow of new investors, especially the family offices and the high-net-worth individuals”.

 

ROI in PE To Fall Down

 

In the last 25 years, PE funds gave back 13% per annum on average, in comparison to a mere 9% for S&P 500 over the same stretch. Firms will struggle to replicate their past ROIs on PE investments.

 

“We will see the consequences emerging out of the big stack of cash PE investors are holding, and it will certainly lead to lowering of investment returns”, said Paul Gulberg – Analyst (Bloomberg Intelligence) earlier in July 2019.

 

Careers in Private Equity in 2020

 

If you are currently pursuing an MBA, or have recently graduated in the same, you may put in applications at varied PE firms in the US.

 

Prospective Job Responsibilities as a PE Associate

 

As a fresher PE professional, you will work on firms spread across a wide range of industries managing their acquisitions and investments. Besides, you will be monitoring portfolio companies for your client and will analyse the likely exit opportunities.

 

In the private equity jobs, the other job duties as a fresh college graduate will comprise:

 

  • Industry and competitive analysis.
  • Investment research.
  • Business diligence.
  • Financial modelling, valuation, and analysis.
  • Providing assistance in the processing of transactions.
  • Curating of memoranda for external and internal usage.

 

Concluding Thoughts

 

Having a brief look at the statistics related to the 2020 PE outlook for the US, we found that 72% of PE funds will see an economic decline in the next two years. However, on the Venture Capital front, the scenario looks a bit positive in the US with the expectations of a downturn hitting, quite slim.

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