2014 saw private equity fund managers return a mammoth $463.6 billion to limited partners, capping off several years of steady increases in total annual distributions. But at $342 billion through the end of last September, PE distributions in 2015 already look set to eclipse 2013’s $388 billion. With a frenzy of selling in 4Q 2015, last year could inch just past the tally of 2014 to set an all-time record. As investments slowed and capital calls declined in turn, net cash flow could be boosted into high-positive territory once more.
Looking ahead to 2016, however, distributions of such magnitude are unlikely even if net cash flow remains positive. PE-backed sales and the pace of investment have both been declining, so it’s a tossup to see which will diminish most and skew net cash flow into negative or positive territory, but investors in PE funds should anticipate a downturn in the flow of money returning to their coffers. Given back-to-back years of massive sums distributed back, though, there’s little reason for complaints. In fact, 1Q 2016 alone saw 91 buyout and growth PE funds raised despite a slowdown in the second quarter, with 41 vehicles closed as of June 1.
LPs are recommitting after such success, maintaining or even raising their allocations to PE—at least for now. The growing pressure exerted by sustained high levels of dry powder may contribute to a decline in future fundraising activity, as some LPs scrutinize the quantity of investment prospects and wait to see how their current allocations play out. But for now, the level of distributions remains a strong incentive to re-up.