The world’s largest private equity firms are facing a problem often confronted by rich individuals: so much money, so little to buy. The situation has put pressure on those companies to find ways to deploy their capital before their time window for spending it expires, which could hurt future fundraising efforts.
Today, the Carlyle Group said it has almost $50 billion in what is known as “dry powder,” available capital that needs to be invested. In July, the Blackstone Group said its dry powder had reached a record level of $38.5 billion, while KKR’s uninvested capital doubled to $21.4 billion.
The dearth of companies to buy is reflected in the statistics. The number of global deals for the first half of 2013 has fallen by 20% while in the US, mergers and acquisitions fell by more than 26%, according to Dealogic.
Corporations, which are sitting on record cash piles, can commiserate with private equity. Apple CEO Tim Cook said earlier this year that the company has looked at big targets, but they “didn’t pass our tests.”
Part of the problem is that many potential targets are seen as too pricey because of the the stock market rise. Chief executives and boardrooms also still lack confidence to move forward with big deals because of the continuing economic uncertainty.
Some of the deals that are being announced have faced backlash from investors. One of the few big deals this year involving private equity is the potential take-private offer of PC maker Dell, which involves buyout shop Silver Lake and has faced several setbacks because of shareholder opposition to the deal.
Private equity firms have built-in deadlines to spend the money they raise, after which the firms lose access to the funding. With the clock ticking on deadlines to spend their dry powder, more private equity players will likely be begging their investors for more time. TPG recently asked investors if it could have another year (paywall) to dole out $3 billion in unspent capital in a particular fund, according to the Financial Times.
One thing that hasn’t so far troubled private equity firms is how to exit their investments. Bubbly markets have translated into good performance for IPOs. But the looming possibility of the US Federal Reserve roiling markets by tapering its bond-buying program later this year could put an end to that party.