Headlines in recent years have heralded the return of the mega-fund, justifiably. Apollo Global Management broke the all-time fundraising record in 2017, raising $24.7 billion for its ninth flagship fund. Other firms are back in a big way, too. But despite the records, cash-on-hand levels are actually below where they were pre-crisis. What's more, drawdown rates have been consistent and reasonable going back to 2010, oscillating between 2.5 years to 4.5 years of cash on hand in that timeframe, according to a recent PitchBook analyst note.
The mega-market (if we can call it that) significantly increased its stockpile between 2015 and 3Q 2018, with the amount of dry powder rising from $177.8 billion to $322.3 billion. To square all these data points, the largest PE managers are investing at an efficient (and apparently effective) pace, despite a rush of new capital and relatively few investment targets. It helps to have large teams in place to handle all that money, and in some cases more than one mega-fund under the same roof. Still, though.
One possible interpretation of all these rosy data points? That this is probably the best of times for mega-funds, and not necessarily in the bubbly sense. The current climate is certainly much more stable than pre-crisis days. Somehow we got acclimated to all those multibillion-dollar headlines.
There were 27 US deals of at least $5 billion completed in 2007 alone, per the PitchBook platform, while there have only been seven so far in 2019, despite mega-fund dry powder levels being substantially higher this time. The animal spirits are gone, even if the dry powder came back.
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This column originally appeared in The Lead Left.
Read more about mega-funds in our recent analyst note on PE mega-fund strategy.