Dry powder: How much is too much? With competition rising and deals hard to find, GPs’ stocks of uncommitted capital, or dry powder, reached a record high of $1.8 trillion in 2017 (Exhibit 14). That was up 9 percent year on year; indeed, dry powder has grown by 10 percent on average every year since 2012. Does the industry have too much capital? Probably not, or at least not yet. If we compare dry powder to other measures, such as funds raised and AUM, “stocks” of capital available for investment have changed little over the past few years vis-à-vis the size of the industry. Dry powder as a percentage of in-year fundraising has been between 220 and 280 percent for the past six years. As a percentage of AUM, dry powder has been similarly consistent, at 30 to 34 percent. Nor are there any significant variations among asset classes, suggesting that GPs are finding adequate opportunities in every field. Furthermore, by the metric we introduced in the 2017 edition of this report, years of PE inventory on hand, dry powder still seems adequate to deal flow. If we divide dry powder by deal volume on a seven-year trailing basis, the industry seems to have cycled through its capital in a stable way for the past several years (Exhibit 15).
This report while focusing on 2018, references a lot of data from 2017. The quantity of capital now held by private equity groups in anticipation of a buying opportunity stands at $3 trillion. That’s almost a multiple from a couple of years ago and speaks both to the quantity of money still sloshing around and the dearth of attractively valued assets to buy with it.Click HERE to subscribe to Fuller Treacy Money Back to top