Does size matter? In US LBO, yes.
This issue of FrontLine makes a comparison of return profiles and cash flow schedules of different types of LBO funds …
In three decades, private equity has developed from a cottage industry managing an estimated hundred billion of dollars to a fullyfledged asset class with close to three trillion of assets under management. This fast growth has been relatively immune to macroeconomic booms and busts, but it is unclear how long this rapid development can continue.
Fund managers compete with each other to raise capital regularly. If the pace of capital inflows in private equity abates or stabilises, this competition will increase. Fund managers will have to work harder to attract capital. This would also reduce some of the pressure on pricing, potentially leading to better longterm returns.
Fund investors track capital inflows to deploy their own capital effectively. Although sophisticated investors avoid market timing, they build their asset allocation dynamically. Their task is to deploy capital while avoiding overheated markets. Part of their challenge is
to track capital raised, raised but undeployed (“dry powder”) and capital already deployed.