The global private equity industry has doubled in size since the global financial crisis to reach a record level of assets under management, according to a new report.
The industry now manages $2.49 trillion in investor money, according to the latest figures from data provider Preqin.
Assets under management have risen for eight consecutive years since the crisis as alternative investments, including hedge funds and private equity, have increasingly come out of the shadows to be seen as mainstream assets for big institutional investors.
Money managed rose by $100bn during the six months to June 2016 (the latest available data), a 4.4 per cent growth rate year on year.
“The private equity industry has been incredibly good and efficient at exiting companies and giving back cash in an environment where prices are quite high,” said Graeme Gunn, head of investment monitoring at SL Capital, an investor in private equity funds.
For investors looking for returns in a low-yield climate “it’s hard to look away from alternatives,” he added, with target returns of around three per cent above global stock indices over long periods of time.
Increased fundraising has driven the growth in assets, with “dry powder” money which is not yet invested increasing to a record $869bn. Over $1 trillion in money has been raised since 2014, as private equity has increased in popularity.
“It’s a relatively balanced environment; we don’t think there’s too much dry powder out there,” said Gunn.
Investors in private equity generally look for higher returns than other asset classes, although the investments often come with long lock-in clauses to protect illiquid investments.
Average holding times for investments are 5.8 years, according to the British Private Equity and Venture Capital Association (BVCA). Meanwhile, total equity return outperformed public companies by over four times.
Christopher Elvin, head of private equity products at Preqin, said: “The industry is well positioned for another strong year in 2017. In a low-interest-rate environment, the asset class continues to appeal to investors looking for high absolute returns and portfolio diversification.”