Fund managers returned a record $443bn to their investors through the year to Sept. 30th Preqin, says, adding that this represents a slight increase from the $424bn they distributed in 2014, and is the third consecutive year in which the level of returned capital has hit a record high.
This is compounded by the falling level of investor capital that fund managers called upon through the year, which fell from $265bn in 2014 to $226bn in 2015. This means the total net cash flow for private equity investors in 2015 was a record $217bn.
However, the lower levels of capital called up from investors has spurred the total level of capital waiting to be deployed by fund managers to new record highs. As of the end of 2015, the private equity industry held a total of $2.41tn in assets, of which $1.66tn was the unrealized value of investments still held by fund managers, and $757bn was dry powder. As of the end of Q3 2016 however, the total dry powder in the industry has risen sharply to $839bn, far above any level previously seen.
And this happens even if since the start of the year 170 private equity funds have been raising just $62bn, the lowest figure on records since Q3 2013. Thirty-six buyout funds held a final close in Q3 2016, securing an aggregate $36.0bn that is $8.8bn less than in Q3 2015 when 48 funds raised $44.8bn. In Q3 more venture capital funds closed (76) in the quarter than any other fund type, securing an aggregate $11.9bn. However, these figures represent a 15% and 30% drop in the number of funds closed and aggregate capital raised respectively from Q2.
The number of private equity funds seeking capital has continued to grow in recent quarters, with 1,807 funds in market at the beginning of Q4, targeting an aggregate $495bn in capital commitments. The number of vehicles on the road in Q4 represents a new record, surpassing the fi gure reported in Q3 2016 (1,720), while the $495bn targeted by these vehicles also represents an increase from the previous quarter ($447bn) but falls shy of the record $504bn observed in Q4 2015.
The largest private equity fund currently targeting capital is China Reform Fund Management’s venture capital fund China State-Owned Capital Venture Investment Fund; should this fund achieve its target of CNY 200bn (approximately $30bn) to invest in innovative technology and industrial upgrading projects in China, it will be the largest private equity fund ever raised.
As for funds performance, buyout funds posted the highest one-year horizon net IRR among private equity funds (+17.1%) while in the three years to the end of 2015, both buyout and venture capital funds recorded average net IRRs above 18%.
The gap between top and bottom quartile private equity funds has been widening among recent vintage funds. Median net IRRs have been rising, and 2012 vintage funds have the highest of any vintage (+15.1%). However, since vintage year 2009, top quartile funds have all recorded IRRs of more than 20%, while bottom quartile funds have not exceeded 10%.