Record Number of Private Equity Funds Fighting for Assets, Investor Capital

The competition is heating up for private equity managers as investors pour still more capital into the asset class.

As of November, 42 percent of fund managerssurveyedby alternatives data provider Preqin had experienced higher levels of competition for assets compared to the prior year. The middle market – seen as having the best opportunities by 58 percent of investors – was particularly congested, with 51 percent of managers citing an increase in competition.

According to Preqin, the industry has become more crowded as general partners respond to rising demand from investors. A record 1,865 funds are currently seeking $624 billion in capital, putting pressure on managers to find good deals.

“Record distributions in recent years have driven investor appetite for private equity, with more fund managers coming to market in order to meet this demand,” says Christopher Elvin, head of private equity products at Preqin. “With record numbers of fund managers vying for the best deal opportunities, it is unsurprising that competition for assets is rising, driving up valuations.”

Roughly a third said it had become more difficult to find attractive investment opportunities compared to the previous November, while 41 percent cited high valuations as the biggest challenge facing fund managers in 2017.

The high valuations have dampened managers’ ability to deploy capital, with middle-market buyout funds sitting on a record $99 billion in dry power this month. Fifty-four percent of managers said they planned to put more money to work this year than in 2016.

With competition rising, 36 percent of respondents said fundraising would be another key challenge in 2017. As of November, 72 percent of fund managers said competition had increased for investor capital over the last year. Over the same period, however, 58 percent of managers said they had experienced an increase in investor appetite, with 15 percent noting a “significant” increase.

In 2016, 48 mid-sized buyout funds raised a combined $41 billion, the most since the financial crisis, according to Preqin. And almost half of investors surveyed by the data firm said they planned to increase allocations over the long term. Despite rising competition among managers, Preqin concluded that “it is likely we will see continued opportunities to raise capital.”