Inflation touched off by global supply chain chaos and labor shortages could potentially turn an idyllic investing climate into something much more challenging. It’s also possible that the pandemic’s most lasting impact on the economy has yet to fully play out. For one, 2021’s massive run-up in dealmaking shares some of the characteristics we saw at the market’s last peak in 2006–07, including a spike in large public-to-private deals. All of this favors deep expertise, focus, and the ability to move quickly and decisively in a hypercompetitive market.Īs we look into 2022 and beyond, there are some nagging questions worth pondering. They are also getting much more sophisticated in how they build growth into their allocations and whom they are willing to bet on. As digital innovation transforms industry after industry across the global economy-a trend the Covid pandemic accelerated dramatically-investors are responding with trillions in new capital to fund the insurgents and help the incumbents bolster their competitiveness.
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It’s also evident that the industry’s traditional focus on cost and efficiency is giving way to a widespread belief that technology-enabled growth and disruption are more potent drivers of value. Increasingly, investors are tracking down growth and diversification wherever they can find it across the broad private equity spectrum. The message for GPs is clear: While the private equity industry has been extraordinarily busy over the past year, it’s not just about buyout anymore. By 2021, growth equity and venture AUM had reached 82% of the buyout total. These growth classes have been adding assets under management (AUM) at around twice the rate of buyout over the past decade and have been producing deals at an unprecedented clip. New funds have sprung up to serve them, and older ones-particularly the large, diversified buyout funds-have pivoted accordingly (see Figure 3).Ĭonsider the rapid rise of growth equity and late-stage venture capital-the gray area between buyout and start-up venture. The appetite for diversification has led investors to pump capital into areas they never would have considered in the past. But the shift is also showing up in the stunning growth of subasset classes like growth equity, infrastructure, and secondaries, which isn’t reflected in the buyout numbers. Specialization’s pull is reflected in the fact that technology funds and those that invest in tech-enabled sectors like fintech or health tech have become by far the dominant theme in the buyout world. As the industry matures and private equity investors become more sophisticated, they are increasingly looking for types of specialization that may or may not be offered by a typical buyout fund. What began to crystallize in the data this year is that investors are shifting their focus in new directions.
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That’s because the buyout deal count doesn’t tell the full story of how the industry was spending its time. Hugh MacArthur discusses private equity's record year and the future outlook amid rising inflation.įor those close to the private equity industry, however, this data point will run counter to what they feel in their bones-that the frenzied number of deals done over the past year was anything but average. That was a clear pickup from Covid-capped 2020 levels, but it still lagged 2019. Although investment value doubled during the year, the raw number of buyouts transacted in 2021 hovered around the five-year average of 4,000. Supersizing helps explain why deal count was the one buyout metric that lagged all others.
Average deal size pierced through the $1 billion mark in 2021 for the first time ever. That fed a trend that has been building for years: The biggest, most experienced funds are raising the most money and doing ever bigger deals. With record amounts of unspent capital waiting to be put into play, private equity investors were presented with ideal conditions to buy and sell companies. The burst of liquidity has not only shored up portfolio companies wrestling with erratic demand and supply chain issues, but it has also ensured that debt to fund buyouts remains abundant and cheap.
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