source: eFront INSIGHT
Private equity fund distributions have outweighed capital calls by a significant and striking degree over the past five years. The current phase is exceptional in its duration and the size of the gap.
This has three consequences. First, there is a significant amount of capital distributed that can be reinvested in funds. Second, and even more strikingly, the pace of capital deployment is even slower than during the worst of the 2007-09 crisis. This is clear evidence of discipline in capital deployment by fund managers, and of a build-up of dry powder. This could translate into a further extension of investment periods of active funds, or fund size reductions. Third, private equity portfolios are actually contracting, a fact that is counter-intuitive and seems to contradict the widely reported increase of assets managed by private equity funds. The reason revolves around ‘residual value’.