Private equity is breaking records left and right as funds rake in money

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Private equity is taking off, and breaking records along the way.

In some ways, private equity's gain comes at the expense of hedge funds' losses. In others, it is simply emblematic of the tremendous amount of capital sloshing around the world, with few other places to invest after almost a decade of low interest rates.

North American funds secured their highest first-quarter fundraising total ever, raising $62 billion, according to data compiled by Preqin, an alternative assets research firm. Worldwide, 253 private capital funds ended their fundraising process in the quarter, hauling in $156 billion, the data showed, which was the best first quarter since right before the financial crisis.

The momentum is likely to continue into the second quarter, with more than 3,000 funds currently marketing to investors, according to Preqin.

BlackRock turns to the machines for new stock-picking strategy
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Apollo Global Management hopes to raise more than $23 billion in a fund that it is currently marketing to investors, according to three people with knowledge of the matter. That would be the largest private-equity fund ever, surpassing the nearly $22 billion fund raised by Blackstone in 2007. The closing could come as soon as next month, one of the people said.

Apollo declined to comment. Bloomberg reported last month that Apollo was fundraising.

For most investors in private equity, it all comes down to performance, at least in the long run. In the year 2016 through September, a Cambridge Associates index of private equity returns posted gains of 8.5 percent, which was about half that of any public stock index.

But in the long run — and for those investors expecting some sort of a decline in the public markets, it's all about the long run — private equity continues to outperform most equity benchmarks, with almost 11 percent returns over 10 years, according to Cambridge Associates.

Tough days for hedge funds

Compare those private-equity inflows with hedge funds, which saw investors pull out $106 billion last year, the most since 2009, after posting returns about half that of the . Private equity's 8.5 percent gain net of fees surpasses hedge funds' 4.95 percent gain based on HFR's index over the same period.

Ironically, hedge funds also see value in the upswing in private equity. This week, fund manager Tiger Global bumped its passive stake in Apollo to 12.5 percent from a previously disclosed 7 percent, according to a filing.

M&A upswing? Not quite yet

Despite having plenty of capital to put to work, private equity firms have been muted when it comes to making acquisitions. Buyout activity fell in the first quarter to only 970 transactions, representing $53 billion, which was down from the 1,058 deals worth $89 billion during the previous quarter, according to Preqin data.

In some ways, this represents the double-edged sword of having so much capital in private equity. Plenty of managers are ready to deploy it, but as they chase assets, it can drive up prices, making them more expensive. Moreover, valuations in the public markets continue their upward climb.

As interest rates rise, however, private equity executives are hoping that the valuations will compress and they'll be able to become buyers again.