PEI 300: The advantages of scale

Conventional wisdom says those with the most capital to deploy have the toughest job to generate returns. The need to write big cheques means a smaller universe of viable targets, heavily intermediated auction processes, high prices and less opportunity to tap into growth companies. This leads to bulge-bracket firms going shopping in the mid-market.

Not so, says Blackstone’s global head of private equity Joe Baratta. In fact, he sees far less competition at the mega-fund end of the market than the crowded mid-market. This year Blackstone has yet again redefined what it means to be the biggest in the business with a five-year fundraising total of more than $80 billion – more than was raised in the same period by the bottom 60 firms combined.

It’s getting pretty rarified at the top of the list: this year there’s a $68 billion difference in five-year fundraising totals between first place Blackstone and 20th place Silver Lake. There are mega firms and there are really, really mega firms. This, reckons Baratta, gives his firm a different sort of edge.

“There are many thousands of publicly traded companies with market caps above $5 billion. There are, again, many thousands of divisions of large corporates that would have market caps above $5 billion,” he told us in an exclusive interview. “Our available market is the whole of the public market cap in the world above $5 billion. That is not a small market, that’s a giant market.”

Blackstone  isn’t the only firm benefiting from what remains an institutional rush to private capital markets. The top 10 have pulled in a combined $432 billion, the top 50 $966 billion and the whole list $1.7 trillion.

For more context on the size of this year’s PEI 300, check out this 60-second video that gives the edited highlights.

Numbers such as those posted by this year’s PEI 300 inspire equal parts celebration and panic: does this mean we’re in a bubble? Is there too much capital chasing too few deals? What happens when the music stops?

It’s true the last few years have been some of the richest for fundraising the asset class has seen, and that will naturally subside once the market turns. But these big numbers are also a symptom of the market maturing. Just 20 years ago the number of active GPs in the market numbered in the hundreds; today we have more than 7,000 managers in the PEI database alone.

Pair this with private equity’s relatively robust performance during the crisis, and the big numbers start to make sense. We’ve been asking limited partners how they’re preparing for the downturn, and thus far rolling back private equity commitments has not been among the answers.

Write to the author: isobel.m@peimedia.com