After a surprisingly resilient 2020, private equity deal flow came roaring out of the gates in 2021, as fund managers looked to deploy record amounts of investor capital, while also taking advantage of buoyant listed equity markets to exit existing positions. Around 8,000 deals are expected to have been completed, conservatively annualising data to October 2021, with a combined value of more than USD800 billion, breaking the 2007 record of USD712 billion.
After a surprisingly resilient 2020, private equity deal flow came roaring out of the gates in 2021, as fund managers looked to deploy record amounts of investor capital, while also taking advantage of buoyant listed equity markets to exit existing positions. Around 8,000 deals are expected to have been completed, conservatively annualising data to October 2021, with a combined value of more than USD800 billion, breaking the 2007 record of USD712 billion.
That’s according to the 2022 Global Private Equity Report published by Preqin, whilst also finds that private equity returns continue to outperform public markets, with the global private equity funds tracked by the company having achieved a net initial rate of return (IRR) of 18.8 per cent over the five years to March 2021.
The surge in private equity investment activity has been supported by a virtuous circle driving the asset class to new heights. Low interest rates are incentivising additional investor allocations, keeping buyout financing costs low, and sustaining buoyant valuation multiples. However, there may be signs that the early-2021 boom in risk assets could be starting to moderate, with fundraising softening from Q3 2021. As the private equity market cycle progresses, and the market becomes increasingly crowded, Preqin predicts a larger portion of exits will involve sales to other GPs, also known as secondary buyouts. This could signal that the current private equity cycle is beginning to mature; it is also a natural result of companies staying private for longer.
Private equity’s expected returns will continue to push assets under management higher over the next years. In addition, Preqin forecasts further increases in global private equity fundraising, with USD645 billion being raised in 2022 and USD813 billion in 2026. Preqin also anticipates that more public companies will be taken private by buyout funds around the world, as fund managers need to deploy large sums of capital and the pool of suitable private companies they can target is limited.
Private equity investments are also expected to target specific regions. In a survey conducted in November 2021, Preqin found that institutional investors are keen to deploy more capital into emerging markets private equity in the longer term. Fintech, healthtech, e-commerce, and edtech in India, Vietnam, and Indonesia are all on the verge of a boom, riding the growing wave of digital adoption. while low interest rates and more favourable valuations in Japan and Australia may offer promising opportunities for buyout funds in markets with better risk protection. More generally, there is growing investor interest in earlier-stage investments regardless of region.
Cameron Joyce, CFA, Vice President, Research Insights, Preqin, says: “While the pandemic caused a significant amount of disruption in the global economy, the policy response from the authorities in many nations was swift and powerful. As a result, private equity activity has significantly increased on a wave of liquidity and positive investor sentiment. Although concerns around inflation have been growing, the outlook for the global private equity market remains positive.”
