Report: Private Equity Sits on $3 Trillion as Dealmaking Slows

Private equity firms are reportedly holding onto a record 28,000 companies worth $3 trillion-plus.

It’s a situation outlined in a report Sunday (May 26) by the Financial Times (FT), which noted that the private equity (PE) sector’s difficulties in providing returns to clients is hurting hedge funds, which rely on those clients — pension plans, endowments, foundations — to raise money.

Hedge funds that want to raise money from institutional investors are being turned away, the report said, on the grounds that the institutions don’t have the cash to give them. This trouble, the FT adds, is due at least somewhat to a slowing in distributions that investors have received from PE funds.  

Buyout-backed exits dropped to $345 billion in 2023 — their lowest level in a decade, per Bain & Company’s annual private equity report, also the source for the FT’s 28,000 company/$3 trillion figure. 

“Private equity distributions have gone down, the IPO market has been very thin and M&A has been held back,” said Nick Moakes, chief investment officer at Wellcome Trust. “If you’re not going to get bought and can’t get listed, PE is scratching its head on how to do distributions.”

The FT also said findings from the Bain report showing that assets in the private capital industry have jumped more than threefold since 2013, from $4 trillion to $14.5 trillion last year.

At the same time, the organization Hedge Fund Research found that inflows to those funds have been cooling for the past decade, with investors pulling their money on a net basis in five of the last 10 years.

Meanwhile, PYMNTS wrote recently about private equity’s push into the FinTech landscape, an area where “arguably, valuations don’t reflect the potential of changes in payments processing, and especially payments acceptance.”

This followed Canadian FinTech Nuvei’s recent announcement of a $6.3 billion deal with PE firm Advent International in the wake of weeks of media reports that the company was engaged in acquisition talks.

Nuvei has advised shareholders to vote for the go-private deal at a meeting next month, calling the agreement “in the best interests of the company … and represents an increase of approximately 42% from the consideration initially proposed by Advent.”

“The read across here, we note, is that a) Advent was willing to pay up and b) Nuvei sees more opportunity operating in private hands, perhaps, than might be seen operating as a publicly traded company,” PYMNTS wrote. “In the latter case, firms are marked to market each and every day, and each trading day on the exchanges can be and often is volatile.”