US private equity funds look abroad

International capital is flowing into US funds, but the vehicles are increasingly looking outside the country for opportunities.

US private equity funds are becoming more internationalised in their spending and fundraising.

International deals accounted for 50 percent of the $5.5 billion invested by US GPs in the PitchBook database during 2017, according to The Internationalisation of Alternative Funds from Maples Fund Services. This compares with just 28 percent of the $4 billion invested in 2016.

The increase can be attributed in part to soaring US valuations, the report notes. Median deal multiple hit an unprecedented 12.9x EBITDA in 2017, according to Murray Devine’s 2018 Private Equity Valuations Report, far above the previous high of 10x EBITDA in 2006.

Many GPs are now seeking opportunities in other markets they perceive to be less competitive.

“The US was the first region into recovery,” Adam Turtle, co-founder of placement agent Rede Partners, tells Private Equity International. “Europe was in recession for much longer, so you do have a bit of a valuation arbitrage there. That’s creating more transatlantic GPs and maybe that globalises people’s perspectives a little bit.”

An increasing amount of US GPs’ capital is coming from overseas. Total capital committed by non-US LPs reached $1.3 trillion as of Q2 2017, up 47.3 percent from Q1 2014, the report says.

Though domestic commitments still outweigh international ones, the former rose only 38.4 percent to $1.8 trillion over the same period.

“Because the underlying market within the US, from an LP side, is deep, many
of the best managers haven’t actually travelled in order to find capital globally,” Turtle says.

“There’s always a bit of pent-up demand in Europe for high-quality US products.”