PEI 300: An industry better capitalised than ever

With almost $2trn raised between them in the last five years, this year’s PEI 300 are armed and ready for the post-coronavirus rebuild.

Click the image to see the full ranking

Annual fundraising figures go some way towards painting a picture of just how much capital is in the hands of private equity managers, but the ebbs and flows of the fundraising cycle often leave that picture incomplete.

Lest there be any doubt as to how much of a boom period fundraising has been through over the last few years, this year’s PEI 300 lays it out for you.

On top once again is Blackstone, with a five-year fundraising total of $96 billion, 16 percent higher than its total last year and almost $35 billion more than second-place Carlyle Group. It is mega-funds ahead of the competition.

And Blackstone isn’t the only firm to up the ante. The top 10 is around $30 billion larger than last year’s, the top 50 has broken the $1 trillion mark for the first time, and the entire PEI 300 has amassed $1.988 trillion. That’s the same as Italy’s GDP. Firms now need at least $1.4 billion to make it into the ranking.

Private equity, then, is well-capitalised as we move into and through the economic and social trauma caused by the covid-19 pandemic. At such a time as this, being private equity owned is a blessing, Blackstone’s global head of private equity Joe Baratta tells us.

“I do believe, 100 percent, that in a crisis it’s better to be backed by a private equity firm, particularly and to the extent that it is able and prepared to support these companies, which of course we are,” he says.

“The businesses that we own at Blackstone that are directly affected by the pandemic, [such as] Merlin, which is the second largest visitor attraction company in the world next to Disney, we’ll be very supportive of. We’re helping it raise capital where it can, we’re continuing to invest in long-term capital projects like the Legoland theme parks that will be opened hopefully next year in New York and in Korea the following year. We’re continuing to support investment in these companies that we believe have good long-term prospects.”

PEI 300 2020 Main graphic
Click image to see how the PEI 300’s top 10 has evolved

Private equity has an opportunity here to play a major role in rebuilding economies as governments and industries grapple with the fallout from the pandemic. How it responds to that opportunity will have a major impact on the industry in years to come.

As Emily Brown, partner at law firm Schulte Roth & Zabel and an entrant on this year’s Private Equity International Future 40, put it back in April: “Ten years from now I would like to be looking back and saying that private equity was not only part of the solution to the crisis we are entering at the moment, but that it was seen to be a vital part of the solution.”

Baratta says the private equity ownership model was proven in the post-global financial crisis period, and it will be again through this period.

“[The capital] which is in the hands of private equity fund managers I think will be beneficial to the economy because we will provide capital for businesses to make long-term investments in their growth, in their ability to operate and employ more people, and to expand their productive capacity,” Baratta says.

“In the short run, private equity has shown to be an important provider of capital to companies that have short-term dislocations in their businesses, either because of a direct effect from covid-19 or because they’ve expanded too quickly. To fix balance sheets and to allow them to continue to operate and grow, private equity has filled an important need in the capital market.”

The vast majority of private equity fund managers want to own businesses that will be around for the long haul, and invest in companies that can grow, he says. This means a greater emphasis on business building rather than cost cutting.

“It’s not all super high growth technology but it’s businesses that can grow at or above GDP that will be more valuable after our investment in them than before we found them. That requires investing for growth,” Baratta says.

It also means being slower than others to pull the trigger on employment reductions and furloughs.

“We’ve been very careful about how we manage employment levels and the benefits that we provide,” he adds. “We’re seeking to make sure that we’re on the generous side and not leading sectors in employment reductions compared to public company peers. We want to preserve the ability of these businesses to rebound and to operate when the economy reopens.”

Private equity is already a significant part of global economies – in the US private equity firms hold investments in around 35,000 American businesses that employ 8.8 million people, according to the American Investment Council. This year’s ranking shows it’s ready to take an even larger share – and if it is indeed a superior ownership model, employees and society should be the better for it.