For many reasons, PE is better suited today to manage volatility than it has ever been before. Firms have more capital at their disposal — more than US$1.2t in dry powder — and moreover, have diversified in ways that increase their resilience and flexibility, such as adding new asset classes. Most importantly, the sector as a whole has expanded its operating toolkit by building deep sector and functional expertise.
Macro headwinds continue to be top of mind for PE and make the operating and deployment environment challenging for PE firms, with instability in the banking system providing an additional headwind, insofar as it pulls immediate concerns around risk management to the forefront while pulling focus from longer-term value creation opportunities and opportunistic investments.
Firms are focused on a number of interesting spaces at the moment as they seek to:
- Work within the constraints of a more limited financing environment
- Deploy capital into companies with compelling long-term growth stories, which in many cases may be temporarily oversold or otherwise mispriced.
A barbell-shaped market dominated by take-private activity
Over the last several quarters, the market has bifurcated, with one side defined by smaller transactions, and the other by take-private deals that have dominated deal activity for transactions of significant size.
The first quarter of 2023 saw PE firms announce deals valued at US$92b, a marked decline from the US$240b announced in the first quarter of last year, but roughly on par with Q4. Activity picked up as the quarter progressed, however, driven by large-scale take privates – March saw more than US$62b in PE deals announced, versus just US$12b in January.