Too Many Fish and Not Enough Bait in the Private Equity Pond

Using figures from Bain & Company’s 2012 private equity report, there is roughly $1 trillion in dry powder throughout the Private Equity industry with nearly half of that amount idling within Buyout firms.  The rest remains scattered in other strategies.

What does this mean?

• It’s a seller’s environment
• LPs are thirsty for distributions from their earlier capital commitments
• The fundraising environment is difficult to navigate for most GPs— prior relationships will be key for those GPs that have made the effort
• The industry goal of raising 2.8 times that of 2011 is unlikely

Other facts of the report:

• More than 60% of fund capital is invested in investments with less than stellar multiples (<1.5x)
• GP carried interest will be non-existent if this remains

Translation:

The GPs must differentiate themselves from their competition by having tighter controls and monitoring capabilities at the: Portfolio Level, Fund Level, and investment Level.  Tracking KPIs must be as dynamic as possible.  Valuations must be as accurate and auditable.  There is such a tight spread between being successful and unsuccessful this year that GPs must find a way to leverage their assets, cut unnecessary expenditures, and develop better rapport with their LPs of the past as well as prospective investors going forward.

Now, let’s see how fast these fish can swim…

Posted by: Justin Marchi