Bloomberg - - The private equity industry is on a spending spree like never before.
Buyout Barons Blackstone Group Inc. KKR Co. with investments close to all-time highs, this year account for a record 30% of the global transactions, and the raising of funds close to all-time highs
Investors are flush with cash and looking to put the money to work. In the U.S., a private equity consortium recently announced one of the biggest leveraged buyouts in all time In the U.K. PE funds have been at their busiest since the financial crisis, targeting household names including grocery chain Wm Morrison Supermarkets Plc. In mid 2021, the sector had honed a record $3.3 trillion of fresh capital that included $1 trillion held by buyout funds, giving it significant firepower for unspent acquisitions.
Lots of investment opportunities have created a real boom in private equity, said Meziane Lasfer, professor of finance and researcher on private equity at Bayes Business School in London. The more PE firms take over companies, the more they grow, the more cash they can extract from their investments, the more opportunities they can take. The industry s success, however, is drawing greater scrutiny from authorities across the globe, potentially limiting future returns.
The industry has nearly tripled since the start of 2011 in size. Combining equity value, exit value and fundraising, the sector is on track to top $1 trillion by year end, wrote Hugh MacArthur, Head of Global Private Equity at BainCo, in July.
While critics say managers simply extract as much cash as possible from highly leveraged and vulnerable companies, fans want to highlight the sector's track record of growing businesses while outperforming equities. The industry s performance is difficult to measure. Academic research on this point is mixed and there s no agreement among investors on a standard metric.
Private equity is now beginning to expand into the retail market by rolling out products to household investors in the hope of tapping a savings pool worth upwards of $74 trillion.
The biggest names have moved into credit, real estate, infrastructure and other areas, leading to new record infund raising.
KKR alone raised an all-time record $59 billion in the second quarter of its New York market strategies. Carlyle Group Inc. is seeking to raise as much as $27 billion for its latest flagship fund, in what would be the largest private equity pool.
The latest asset class that everyone wants is secondaries: vehicles that focus on buying existing portfolios of private equity holdings from investors who want to exit before markets mature.
Secondaries also step in to buy existing investors when fund managers want to keep holding an asset beyond the lifetime of a fund. The latest deal: In mid-September Glendower Capital Group offered to buy secondary stakeholder CVC Capital Partners for $8 billion.
The industry s drive into different investment strategies has helped push overall funds under management at major companies to levels exceeding many leading mutual fund houses.
The rapid expansion of private equity is causing transactions to come under the control of sovereign wealth funds or big businesses.
By cranching together, several PE funds and key investors can pool resources to take on ever more ambitious targets. That was what happened in June when Blackstone, Carlyle and Hellman Friedman announced a majority stake in Medline Industries Inc. in June alongside Singapore s GIC Pte in Singapore in a deal of more than $30 billion.
Also associated with the rise of longer deals has been the proliferation of private credit funds which have stepped in post-financial crisis to replace banks in some of the more riskier lending areas.
The U.K. has been a center of deal activity. Thanks to a cheap takeover code, a hands off approach from Government and permissive valuations, the U.K. is on track for the busiest year of private equity deals since the financial crisis.
At present, Clayton Dubilier Rice LLC, Fortress Investment Group and others are trying to buy Blue chip stalwart Morrison. Meanwhile, the U.K. authorities are probing another US PE deal, a bid by Advent International Corp-owned Cobham Ltd. to buy rival Ultra Electronics Holdings Plc, on national security grounds.
To be sure, while there is little at the moment to stop the flow of money into private equity, the sector's growth is drawing more attention from regulators and politicians.
In the U.S., senior Democratic Party members are debating measures that would make it harder to add leverage on deals as well as end tax breaks for fund managers. While in the U.K. a mid-market tabloid's on-going campaign against private equity deals shows how the once hostile industry is starting to attract more hostile media.
More significantly, China announced a crackdown on private equity funds raising direct money from domestic retail investors. This effort could be a significant failure in global raising numbers.