Double-Edged Sword: LP Interest in Private Equity Helps Breed Competition—Preqin Report

Private equity has become a victim of its own success.

Limited partners are eager to invest in the PE asset class, but dollars flowing in have created a competitive environment with steep prices, according to a new report from Preqin.

Private equity dry powder reached $963 billion as of July 2017, and half of fund managers surveyed said that competition for deals has risen from a year ago, particularly for middle-market buyouts.

Family offices are showing greater interest in private equity, according to Preqin’s “Private Equity Fund Manager Outlook.” Sovereign wealth funds, private sector pension funds and wealth managers have also increased their commitments to PE funds. Banks, meanwhile, have pulled back as investors, a move attributed to the Volcker Rule, which restricts proprietary trading.

Competition for deals is robust among the 1,998 private equity funds in the global market at the start of the third-quarter—a record high.

Twenty-eight percent of fund managers said finding attractive investment targets was more difficult than a year ago. In response, they’re looking at more opportunities. That competition, coupled with low interest rates and ample access to financing, has driven up valuations.

Preqin’s findings were based on responses from 153 private equity fund managers from across the globe surveyed in June.