Private equity's dry powder challenge

IT'S hard to view the unprecedented flow of capital into private equity funds over the past five years as anything but positive. Buyout funds alone have raised a stunning US$1.1 trillion since 2012. Last year's record fundraising of US$301 billion in buyout capital signalled that investor enthusiasm is only increasing.

At the same time, the industry's inability to put money to work as fast as it's coming in is generating annual records in a more problematic metric - "dry powder". The number of individual deals has dropped 19 per cent since 2014, and while a steady rise in the average deal size is buttressing value, the industry still isn't putting money to work as fast as it's coming in.

At the end of 2017, buyout funds were sitting on an all-time high of US$633 billion in uncalled capital. The total has been rising at a rate of 12 per cent compounded annually for the past five years, and 45 per cent of it sits with the expanding population of megafunds, those with more than US$5 billion in capital.