Private equity groups are holding more cash for acquisitions than they had at the height of the leveraged buyout boom, in spite of a fall in the volume of deals being done – raising concerns about overcapacity in the industry.
Data compiled by Preqin, the research group, show that the value of unspent commitments to private equity funds, known as "dry powder", has surged to $789bn this year – an increase of 12 per cent since December 2012, after four years of decline.
This compares with $769bn of unspent cash in 2007 – when the volume of private equity deals reached a peak – and the $829bn that went unspent in 2008, when deal volumes plunged 70 per cent as the financial crisis unfolded.
In 2007, private-equity houses led $776bn-worth of deals, but the comparable figure stands at just $310bn in 2013, according to Thomson Reuters.
According to research by Hamilton Lane, a private equity investor that tracks 2,000 funds, this combination of increased fundraising and decreased deal volume could lead to a record level of dry powder by the year end.
Buyout groups' rising cash piles reflect the fact that they have taken longer to invest their funds since the crisis, as they have found fewer good opportunities.
But the increase in the capital overhang has been largely fuelled by a renewed appetite for private equity funds from yield-starved institutional investors.