It is a long slow recovery for the PE, says SEI, but rising allocations and more active Secondary Market are the bright spots. SEI’s latest study, “Key Course Adjustments for Breaking Through: Five Ways Private Equity Managers Can Optimize Their Competitive Advantage,” identified the aforementioned positive industry trends.
But it also notes “a Darwinian climate of intensifying competition” in which many funds will struggle to survive even as new ones come forward. The survey says that buy/sell dynamics are out of balance in certain segments. PE funds have a “glut” of assets, but are “starved for quality acquisitions and viable exit opportunities in certain strategies”, which will make it hard for some managers to achieve returns and raise new funds, it said.
Further Key Findings
A “mountain of dry powder.” The industry’s oversupply of assets is driving up valuations of potential acquisitions at a time when rising equity markets are having the same effect. More than 6 out of 10 survey respondents said the industry’s surplus of cash is resulting in more competitive bidding situations, and 45 percent said it is raising sellers’ price expectations. It is also making new fundraising more difficult, according to nearly half of the managers surveyed.
Rising performance pressures. Investors and consultants see performance as the second most important factor in fund selection. But many funds are being “hobbled by unprofitable investments and the stiff competition for acquisitions”. (Image Source: SEI)