Private equity managers are taking longer to return to the fundraising trail as high valuations and political tensions cause dealmaking to slow.
The average time between funds increased to four years and three months in 2018, the first such increase in five years, according to EY’s PE Pulse for April 2019. The report attributed the decline in part to firms calling capital at a slower rate amid fierce competition for deals.
Private equity spending fell 24 percent year-on-year to $96 billion of deals in Q1 2019. Firms invested $463 billion over the past 12 months, down 8.6 percent on the preceding period. Deal values fell 23 percent and 16 percent in Asia-Pacific and EMEA, respectively, over the past 12 months, potentially as a result of political uncertainty around US-China trade negotiations and Brexit. Spending in the Americas rose 4 percent over the same period.
Those who do return to market are raising capital faster, the report noted. The median time to close private equity funds was 12.5 months last year, the fastest time since before the 2008 global financial crisis, according to Pitchbook. Firms collected $379 billion for the asset class in 2018, per PEI data.
Partners Group adopted a “more neutral” view of private equity in November as pricing and competition diminished its appeal. Apax Global Alpha, the listed private equity trust of London-headquartered Apax Partners, said in August that it expected to increase its exposure to debt as high valuations hinder private equity deployment.
The median entry price hit a record 10.54x enterprise value to EBITDA in 2017, higher than the 8.85x recorded in 2007, according to a note from the Cobalt GP tech platform. Returns have declined every year since 2009 and fell to a 17-year low of 1.00x in 2017. Performance fees account for between one-fifth and half of general partner revenues, which could decline as a result of compressed exit multiples.