The present global economic expansion entered its tenth year in 2019, and with that, the global industry of private equity has still been able to find and make deals. However, fund managers globally have faced one major obstacle over the years and that is to put the huge amount of capital that they raised to productive work as the competition rises with each year passing by. The top companies have identified that the only way to do this is by getting better and smarter at what they do.
Global Leaders of 2019
Blackstone remains at the top spot in 2019 so far with total fundraising of $82.9 billion in the last five years. Headquartered in New York, this firm has centers in the major financial capitals around the world. It has around 95 portfolio companies that have earned annual revenue of more than $79 billion.
The Washington DC-based Carlyle Group is at the second spot with a gap of almost $20 billion. It has a portfolio of over 200 companies in various industries like aerospace, technology, healthcare, and energy. Kohlberg Kravis Roberts bagged the third spot with total fundraising of $41.6 billion in the last five years. Major portfolios of KKR include First Data, Lyft, GoDaddy, and UFC. KKR was in headlines in recent times for its investment in Toys ‘R Us that filed for bankruptcy in 2018 and shut down more than 800 of its stores. These firms have been at the top since 2000, dominating the global market every year.
Chinese Private Equity
As China is racing towards becoming the world leader, it is important to focus on Chinese PE given the fact that global investments are becoming more interconnected every passing year. The global perception has been that Chinese PE is backed by top companies of the US and Europe.
However, they have been dominated by Chinese funds. More than two-thirds of the funds are raised by the domestic companies of China. Until 2018, the top three global firms accounted for more than 50 percent of the capital raised in China. This change in the fundraising can have huge effects on the use of these funds in the Asia region.
Top Global Investors in China
The list of global investors in Chinese funds is led by the Carlyle Group with funds raised over $21 billion, followed by Kohlberg Kravis Roberts at $19.8 billion. The third spot is taken by TPG Capital with over $16 billion in funds.
The growth of fundraising is sustained in the first half of 2019 due to the closings of a few large growth equity funds. The top 25 US PE MM funds have raised over $25.7 billion. However, the poor performance of the financial markets is still a big obstacle for raising funds for the rest of the year. The long-term prospects of growth and increase in fundraising are still intact though.
The importance of MM funds is declining in the larger market of Private Equity as they comprise only 56.6 percent of US Private Equity fundraising which is about 6 percent less than what it was in the year 2018. Companies like Blackstone, TPG and Vista Equity Partners are expected to close in the next quarter, so the trend is likely to continue. The increase in mega-funds and growth funds is good, with the growth funds accounting of around 24 percent of PE funds.
Trends in PE-Backed Borrowers
One of the major private debt credit managing firm Antares Capital believes that its borrowers are expected to see a moderate to even strong growth trends (3 percent to 5+ percent) in revenue and EBITDA in the current year. Even the borrower default is expected to be low in the range of about 2-3 percent this year.
The portfolio signs are healthy at the moment given the EBITDA add-backs and higher leverage, there is less room for errors if in case there is any economic or geopolitical event that takes a downturn. To understand these trends and the working of the PE around the globe, investment banking courses could be a great way to learn about how the markets function and these companies perform and on what grounds do they perform.
PE in Indian Context
As per reports, there has been an increase of about 27 percent in Private Equity investments since 2018 just in India. In numerical terms, the investments have been more than $23 billion in the first half of 2019. This increase is because the top 54 deals have been of over $100 million. Investments in infrastructure and real estate have seen a growth of over 23 percent as compared to the investments made in 2018.
These two industries combined account for about 48 percent of all the Private Equity investments in 2019 so far as compared to about 30 percent in the first six months of 2018 and 19 percent in the last six months of 2018. The biggest deals have been made by the Canadian firm Brookfield’s buying of the East-West Pipeline of Reliance Industries Limited for $1.9 billion and Brookfield’s purchase of four of the hotels of Hotel Leela Ventures Limited for about $572 million.
There has also been fundraising of about $5.5 billion in the first half of 2019 which is 85 percent higher as compared to the fundraising in the first half of 2018. Edelweiss Alternative Asset Advisor raised over $1.3 billion which was the largest fundraise by any firm in 2019.
The Road in the Second Half
Given the state of the global economy in the current year, there have been considerable amounts of investments and fundraising made globally, and the statistics are showing a positive direction keeping in mind the higher amounts of investments globally. With the prevalence of mega-funds and growth equity, the prospects are looking good from a long term perspective. Private equity will be the catalyst for mega returns in the coming period where new businesses are emerging every minute with significant upside potential.