Experts Find Game Changing Trends in the Private Equity Industry


February 19, 2015

Private equity is constantly changing and adapting itself to the industry’s demand. On Wednesday, plenty of newspapers focused on looking at the game changing trends currently taking place. The biggest focus among experts is on the booming secondary market, increasing buyer demand and growing competition.


Cashing Out Quicker
The New York Times wrote an article on Wednesday looking at private equity’s booming secondary market. These secondary sales of stakes in funds have increased by nearly 80% since 2013 and totalled $47 billion last year. This volume is at its highest point since the financial crash in 2008.


This highlights the general performance of private equity funds and how the soaring stock market has helped drive up the value of PE funds. According to the article, some investors are thus growing more attracted to the possibility of reaping the cash now instead of allowing the funds to mature.


Furthermore, Intelligent Insurer article from Wednesday pointed out that private equity firm exits are currently driven by buyer motivation, especially in the field of insurance. Prakash Paran, partner and head of insurance at DLA Piper for EMEA, told Intelligent Insurer that there is “a greater appetite to do deals, as large insurers can’t hold fire forever,” and that regulatory changes in the field are only a partial reason for high case PE exits in the insurance industry.


Increasing Competition
This has led to an increasingly competitive market. A number of big private equity firms have large amounts of capital available and this dry powder is causing some concern among analysts. The recent research by Preqin highlights how buyout firms are concerned about the dry powder, with 66% of buyout firms acknowledging competition is increasing.


Even though firms have plenty of capital available, there’s still growing appetite for fundraising more. Funds are also going after a lot more equity than previously. For example, Blackstone Group is looking to fundraise $16 billion with its latest buyout fund, Blackstone Capital Partners VII.


The overall fundraising environment is also boosted by the current oil slump. The Financial Times recently reported data by Palico that showed the first six weeks of the year have seen $61 billion worth of capital raised by private equity funds, an increase of 73% to the previous year.


Specialising Private Equity Firms
The heightened competition has increasingly left mid-market private equity firms to face tough choices. For many experts, the future is going to see increased specialisation among firms. Michael Madwell, president of SWFI, wrote on his latest analysis that, “sector specialist private equity firms, with their chosen ”major,” tend to have a tighter grasp on their domain and exhibit higher discipline when buying or selling companies”.


Big funds make it harder for private equity firms to compete and specialisation is crucial for mid-market firms to prosper. This won’t be easy as large investment vehicles continue to be behind the biggest buyouts. As Preqin’s data showed, general partners are increasing their deal flow sourcing, with 83% finding the market is currently much harder to navigate.

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