Choking on Dry Powder: Private Equity's Frantic Scramble to Deploy Capital
It's nice to have dry powder when so many buyout firms are struggling to raise funds, but there's a danger that comes with hoarding one's capital. Private equity firms have a five-year investment period. If M&A doesn't pick up, and fast, some ‘05 and ‘06 vintage funds may have to give their money back or ask for fund extensions. A smaller fund means lower fees and, for those that associate success with size, a blow to those delicate private equity egos. Earlier this week Phil Canfield of GTCR and I discussed the coming expiration-driven M&A flood. We agreed that we don't expect many private equity firms to willingly part with their capital, and a blogger called Anal_yst wrote a more extensive blog post arguing the point. What that all means is there's about to be a mad rush of buyout pros desperate to "put money to work," however they can (but I'm not talking about your firm, dear reader, you would never do that, just everyone else).
