Sunday, January 8, 2017

PEU New Fund Size Hits Record for 2016

Pensions+Investments reported:

807 private equity funds closed on a total of $345 billion in 2016, up from $328 billion by 944 private equity funds in 2015. Half of the private equity funds exceeded their target sizes. The average private equity fund size was a record $476 million, exceeding the previous high of $446 million in 2007. 
PE fund size's previous reported high was a mere nine months before the September 2008 financial crisis.  Harbinger Carlyle Capital Corporation imploded in March 2008.  Consider the words of two Carlyle co-founders on CCC's failure:

“I’m at a loss to say how the whole market can be wrong about the product at this time and we are right,”Carlyle co-founder David Rubenstein

“Maybe,” Carlyle co-founder Bill Conway wrote, “panic is appropriate.”
One burned CCC investor is financing a $1 billion lawsuit against Carlyle.  The judge's decision is due in early 2017.  As litigation funding is now an asset class of its own the decision will be bullish for one party and bearish to the other.

On the real estate side private funds shifted from equity to debt in 2016.  The Real Deal reported:

Private real estate funds raised near-record levels of capital in 2016, as the industry saw a noticeable shift away from equity investments toward debt.

The global shift toward debt mirrors a trend within New York’s real estate industry. Several development firms have launched debt businesses over the past year, as inflated property prices make equity investments less appealing and cautious banks create an opening to issue loans.
The overall volume of dry powder – or money that has been committed by fund investors but has not been invested in properties yet – rose to a record $237 billion, up from $229 billion in 2015 and $136 billion in 2012. The Blackstone Group’s real estate funds alone sat on $33.2 billion in dry powder as of September..
Debt holders have recourse when equity is wiped out, be it corporate or real estate.  Private equity underwriters (PEU) have been known to force a prepackaged bankruptcy.  Ask the Brintons' family about their experience with The Carlyle Group.  It was distinctly distasteful.