What dry powder levels mean for investors in a changing market
August 20, 2022
This quarter, we changed the name of the Private Fund Strategies Report to the Global Private Market Fundraising Report—or the Fundraising report for short—because that is the primary data provided.
It's the complement to our Global Fund Performance Report, which is, as you might imagine, about the performance of funds.
In this iteration of the report, we included a spotlight on dry powder.
The markets may be under stress, but if there's a lot of committed but uncalled capital seeking investable opportunities, that can provide significant support to asset prices—especially if GPs facing increasing interest rates (i.e., more expensive leverage) and an uncertain economy crowd into what are perceived as higher quality firms where bidding wars may occur in the interest of accepting moderate returns to avoid big losses.
Dry powder is actually down across private capital funds as a whole, though VC bucked the trend, inching up to $562.4 billion.
While PE has $1.2 trillion, that is off the 2020 high of $1.5 trillion.
Given the inflation figures that began to alarm in the back half of 2021, we expected that real estate, real assets, and private debt would be seeing more LP commitments on the margin.
While this did hold true for infrastructure funds within real assets—on pace for a record-setting year in the wake of the late 2021 US infrastructure law—real estate and private debt are not seeing a significant uptick in flows thus far in 2022.
The occurrence of rapidly increasing interest rates may have spooked investors in those areas, despite the potential inflation protection that comes from those strategies.
As always, we caveat that our data collection efforts do tend to identify large funds more quickly in a quarter, so the commitments and fund numbers we show for a particular quarter will continue increase over time, especially for small and emerging fund managers.
It may appear that average fund sizes are suddenly exploding, but this is a conclusion that should only be accepted as true after several more quarters have passed.
For more data and analysis, download our latest Global Private Market Fundraising Report.
It's the complement to our Global Fund Performance Report, which is, as you might imagine, about the performance of funds.
In this iteration of the report, we included a spotlight on dry powder.
The markets may be under stress, but if there's a lot of committed but uncalled capital seeking investable opportunities, that can provide significant support to asset prices—especially if GPs facing increasing interest rates (i.e., more expensive leverage) and an uncertain economy crowd into what are perceived as higher quality firms where bidding wars may occur in the interest of accepting moderate returns to avoid big losses.
Dry powder is actually down across private capital funds as a whole, though VC bucked the trend, inching up to $562.4 billion.
While PE has $1.2 trillion, that is off the 2020 high of $1.5 trillion.
Given the inflation figures that began to alarm in the back half of 2021, we expected that real estate, real assets, and private debt would be seeing more LP commitments on the margin.
While this did hold true for infrastructure funds within real assets—on pace for a record-setting year in the wake of the late 2021 US infrastructure law—real estate and private debt are not seeing a significant uptick in flows thus far in 2022.
The occurrence of rapidly increasing interest rates may have spooked investors in those areas, despite the potential inflation protection that comes from those strategies.
As always, we caveat that our data collection efforts do tend to identify large funds more quickly in a quarter, so the commitments and fund numbers we show for a particular quarter will continue increase over time, especially for small and emerging fund managers.
It may appear that average fund sizes are suddenly exploding, but this is a conclusion that should only be accepted as true after several more quarters have passed.
For more data and analysis, download our latest Global Private Market Fundraising Report.
Hilary Wiek, CFA, CAIA
Lead Analyst, Fund Strategies & Sustainable Investing
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