The rate at which private equity funds worldwide are paying out distributions is outpacing the rate at which they’re spending their investors’ capital.
That’s according to research by the alternative investment management software firm eFront, which has revealed that distributions have been consistently exceeding capital calls since 2013.
eFront refers to the five year period during which these dynamics have been in evidence among private equity firms as being “exceptional” and described the trends detected as having been “significant and durable”.
By way of explanation, eFront’s chief strategy officer Thibaut de Laval, has suggested that private equity firms have been able to pay out distributions as a consequence of investments made in the past, while capital calls have been less commonplace largely because capital hasn’t always been easy to allocate and put to work.
Remarkably, eFront’s figures indicate that capital deployment levels were down during the final quarter of 2017 as compared to the peak of the Financial Crisis of the last decade and the years 2007 to 2009.
This situation is interpreted as being indicative of greater discipline on the part of private equity fund managers but also potentially a sign that these funds have significant sums of money build up and ready for investment.
“Capital inflows in private equity are driven by the dynamics of asset allocation, but also by capital distributions that are reinvested in the sector,” commented Tarek Chouman, eFront’s chief executive.
“Net capital distributions could in effect be an early indicator of the future dynamics of fund raising, assuming that fund investors do not divert them to direct investments, secondaries or other asset classes.”
Back in July of this year, the UK’s main private equity lobby sought to play down the potentially damaging impact that Brexit might have on the industry.
Tim Hames from the British Private Equity and Venture Capital Association said that the potential effects of Brexit “will have been greatly exaggerated”.
Mr Hames wrote in an email: “Sections of the business community are spooking themselves senseless about Brexit. They badly need to lie down in a dark room for a while.”
