Private equity firms face a fund-raising overhang of $400 billion, which is an all-time high, according to Alliance of M&A Advisors and PitchBook Data. The $400 billion signifies the difference between funds raised and funds invested through April 2009, since 1998.
The current total is a jump from $377 million at the end of last year and $236 million in 2007. According to the report: “There is currently enough dry powder to more than support the deal activity of 2004, 2005 and 2006 combined with the use of moderate leverage,” wrote PitchBook founder John Gabbert.
The funny thing is, despite griping to the contrary, buyout firms continue to raise money. Pitchbook notes that 18 funds have closed on $25 billion in the last 60 days.
Assuming a 2% fee on those funds, that’s $8 billion in fees for basically sitting on cash. While some firms (including one I met with today) would argue that sometimes the best deal is the one you chose not to do, I would guess that fee-paying LPs want to see their money put to work.
Maybe that’s why investors aren’t protesting when buyout firms launch initiatives that could in any other environment be considered “drift.” That includes the rush into the distressed debt market, minority deals, all-equity deals, or even bank buyouts.