Private equity firms are raising more capital than at any point since 2007, which analysts say could have implications for valuations as the market becomes more crowded.
Investors who are continuing to chase returns in a low-yield environment ploughed $212.6 billion (€181 billion) into North American and European funds in the year to August 1, according to the ‘PE and VC fundraising report’ from PitchBook Data.
This level of flows means that a 24% increase in value over 2016 is expected and PitchBook warned that private equity markets will be “crowded” in the years to come, leading to implications for valuations and dealmakers.
The report said: “PE and VC [private equity and venture capital] firms continue to enjoy immense success on the fundraising trail, adding to their already hefty stores of available capital. Neither asset class shows any signs of slowing down, which could drive valuations higher, leaving dealmakers in a precarious position.”
The report said private equity capital was accumulating in the hands of fewer fund managers as successful repeat funds had been able to dominate a larger part of the market. The number of individual vehicles has decreased every year since 2014 and is on track to do so again this year.
Lacklustre performance by other alternatives such as hedge funds, and strong recent distributions to fund investors allowing them to recycle distributions back into the asset class, were partly behind the demand.
In addition the number of publicly traded firms in the US remains well below its 1996 high, contributing to an environment where capital is incentivised to chase returns through the private markets.
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