Private equity investors are committing more capital to the asset class even as they receive less cash back from their general partners.
According to fund advisory Triago, distributions fell 17 percent in the first quarter to $105 billion, compared with the first quarter 2015. Distribution levels have been gradually falling over the course of the year from a record $133 billion in the second quarter 2015 to $129 billion in Q3 and $110 billion in the fourth quarter.
Distributions are expected to fall even more in the next half-decade, Triago said. However, this is not impacting fundraising. Investors have been attracted to private equity due to solid performance and the low interest rate environment, and have been “put off” by public markets due to volatility, Triago said.
Commitments to funds in the first three months of 2016 reached $136 billion, the highest quarterly amount since the global financial crisis. Between the end of the first quarter and 16 May limited partners committed another $58 billion, raising the total for the year-to-date to $194 billion.
At this pace, Triago said funds will raise $518 billion for the entire year. This would be 11 percent higher than last year’s post-crisis record of $466 billion, coming in second after the $557 billion raised in 2008, Triago said.
Fundraising has been strong partly due to the rise in shadow capital that includes money raised for co-investment, direct investment and separate accounts. Triago found that the first quarter saw $43 billion raised in shadow capital, which is expected to reach $173 billion for the year. This would mark a 7.5 percent increase from the $161 billion of shadow capital raised last year.
Combined together, traditional and shadow capital is expected to reach $691 billion by the end of the year, Triago said, a 10 percent jump from the previous record.