Private equity downsizing and moderating for the post-cheap money era? Forget it. At least, it looks like a lot of the major name brand groups want you to forget it.
As reported in the Financial Times, Apollo Global Management, Ares Management, Blackstone and KKR have deployed between them some US$162 billion in the second quarter of 2024 and look ready to continue. That figure in itself ought to trigger some concerns about concentration of capital and deal firepower in the hands of just a few giant firms.
These major firms are deploying in more ways than pure buyout investment. However, much of it can then circle back to support buyouts. For instance, Ares closed a gigantic $34 billion private credit fund in July, which can then be used to finance buyouts instead of increasingly scarce bank financing.
Concerns over high interest rates and their impact on deal financing can presumably be worked through by the application of such high volumes of capital.
The FT also reported that the Carlyle Group succeeded in raising some $12 billion in the second quarter, much of that destined for the firm’s Japan buyout fund. It’s probably wisely targeted as Japan becomes a particularly bright spot in Asian and global buyout investment.
Unfortunately, S&P Global Market Intelligence notes that as of July, there was already some $2.26 trillion of dry powder looking to be invested. All that money has to go somewhere. Market dynamics being what they are, it’s very likely that it will be used to bid up the valuations of target assets in competitive bidding wars between private equity groups.
It’ll be interesting to see whether the resulting valuations hold up all the way to exit through the next business cycles. And a recent Bloomberg opinion column warned that the high valuations are likely to wind up sooner or later in indebted companies.
Still, all the value exiting public equities in the global market selloff implies there is plenty of investment capital out there ready to flow into fresh opportunities, which may now be available at fire-sale prices. Whether the money will go back into the private space remains to be seen.