5 minute read 14 Nov 2018
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How to make sense of today’s private equity market


Andres Saenz

EY Global Private Equity Leader

Trusted advisor to leading private equity professionals and their portfolio companies. Ardent student of consumer behavior. Marathoner. Family man.

5 minute read 14 Nov 2018

We offer quarterly insights and intelligence on private equity and capital market trends.

Private equity (PE) sees its strongest year in more than a decade. Enthusiasm for the asset class remains high, as evidenced by continued momentum in fundraising and the strongest year for deals since the global financial crisis.

So far this year, PE firms have closed nearly 600 separate vehicles with total commitments of more than US$450b. While off last year’s record pace, it nonetheless represents one of the most active years for PE fundraising in history. Activity was particularly robust in 3Q18, during which firms raised US$175b.

As a result, PE firms now have nearly US$640b in capital that is ready to invest, up 6% from 18 months ago. Adding in other asset classes, including mezzanine, distressed, growth capital and others, brings the total to more than US$1.8t in aggregate dry powder.

Aggregate dry powder


in capital is ready to invest, including asset classes of mezzanine, distressed growth capital and others.

Even more importantly, deployment activity remains strong, with deals valued at US$352.4b, up 9% from last year, making it the most active year for PE deals since 2007. Dealmaking has been particularly strong in the Americas and EMEA regions (up 16% and 29%, respectively), while Asia-Pacific has experienced some softening as firms focus on exits.

Deployment activity


in deal value makes 2018 the most active year for PE deals since 2007.

Technology continues to be a key driver behind the momentum, and the outlook for continued activity in the sector remains strong. Our analysis suggests that PE firms are gravitating toward software firms that are experiencing sharp inclines in top-line growth backed by sustainable recurring revenue models, particularly in the software-as-a-service (SaaS) space. Other active sectors in 2018 include financials (the result of increased activity in insurance); health care (driven by consolidation opportunities, demographic trends and the development of new drugs and devices); and consumer products (particularly the food and non-alcoholic beverages segments).

While fundraising and acquisitions remain active, exit activity continues its secular downward trend, with 762 deals announced so far this year valued at US$261b, down 6% from a year ago. One exception was the Asia-Pacific region, which saw a notable upswing, with PE exits by M&A value up 64% from last year — welcome news for LPs invested in the region.

Not just buyouts — activity is robust across the private capital space

PE firms continue to diversify their offerings to investors and deploy a wider range of private capital vehicles. Offerings in the infrastructure and the credit spaces have seen particularly elevated levels of interest.

In infrastructure, fundraising for new vehicles has already set a new record for commitments gathered in a single year. To date in 2018, LPs have funded 51 vehicles totaling US$81b in commitments, surpassing the US$77b that was raised in all of 2017. We expect continued strength; LPs remain attracted to infrastructure’s unique potential for deploying large amounts of capital for long periods of time and limited reinvestment risk relative to many other asset classes. A recent survey from Preqin found that 43% of LPs surveyed expected to increase their allocations to infrastructure over the next year — this was more than 10 percentage points higher than the next closest asset class.

Similarly, funding for private credit strategies is also active. Through the end of the third quarter, funds have raised more than US$87b for credit strategies, up 18% from the same period a year ago. As a result, firms now have nearly US$282b in capital available for deals, up 14% from just nine months ago.

Direct lending strategies, which last year saw fundraising more than double 2016, have continued to grow in 2018, albeit at a moderated pace. Such funds have raised US$35.7b so far this year, up 8% from the same period a year ago. Mezzanine funds, by contrast, have seen significant year-over-year growth, bringing in US$22.5b, up from US$9.7b last year.

Credit fundraising by type, 1H17 vs. 1H18 (US$b)

Source: Preqin

Firms focusing on risk management as an opportunity and an imperative

As change happens at a seemingly ever-increasing pace, the volume and nature of risks that face market participants are likewise increasing, and growing in complexity. For PE firms, investing in companies that help businesses address these growing threats is an area of opportunity. Firms have invested nearly US$26b in such transactions over the last three years, sensing significant upside opportunities in companies across a range of segments including managed security services, network security, vulnerability management, consulting services, and identity and access management. These deals will only increase in volume in the coming years. According to estimates prepared by IDC, the global cybersecurity market is estimated to grow at a CAGR of 10% between 2017 and 2021, ultimately reaching more than US$122b.

Global cybersecurity market growth estimation


CAGR between 2017 and 2021, per IDC.

And while the opportunities are clearly compelling, PE firms aren’t just looking at risk management from the investment perspective. They are also applying leading risk management practices to their own operating models as they assess and monitor a range of risks including technology risk, general fraud, compliance risks, geopolitical risks and others.

While companies across all industries need to strive for consistency in their approach to risk management, it’s especially important for PE. When risks are aggregated across the portfolio, exposures could surface that aren’t visible at the individual company level. A playbook approach allows firms of all sizes to identify the full array of exposures and reduce opportunities for oversights. For each potential exposure, the playbook can help firms anticipate and answer key questions, such as:

  • Can we define the risk?
  • What can we do to mitigate it?
  • What’s the chance of it occurring?
  • What are the best case, base case and worst case scenarios if it does occur?

Ultimately, the goal is to get smarter and more programmatic in dealing with risk, and evolve from “risk management” to “risk intelligence” – from a focus on managing risk simply in order to preserve value, to harnessing and using risk to create value via informed and measured views that assess the likelihood of an occurrence versus its potential impact. With a holistic view that encompasses the entirety of the enterprise, firms can proactively tailor their exposures and make risk an additional engine of growth.


The quarterly PE Pulse helps you keep current on private equity trends and data, including fundraising, acquisitions and exits. It also provides perspectives on the global M&A market, cross-border deal flows, initial public offerings (IPOs) and debt and bond markets.

About this article


Andres Saenz

EY Global Private Equity Leader

Trusted advisor to leading private equity professionals and their portfolio companies. Ardent student of consumer behavior. Marathoner. Family man.