Is This Another Case Of The Winner Losing?

Preqin is reporting that the private equity industry had a record high of $3.1 Trillion in AUM as of December 31, 2017, representing a 20% increase from the prior year.  I don’t know about you, but I question whether the universe of potential investments has grown sufficiently to absorb all of this capital. I fear that the significant growth in the allocated capital will force private equity firms/funds to chase too few good deals, and the “winner” in the bidding war will actually end up being the loser when all is said and done.

It will be interesting to look back at vintage years 2018 and 2019 to see how these funds do in the next 10-12 years, especially if the exit strategy is an initial public offering that happens to coincide with a bear market. Remember those? Our industry’s trends are created through fund flows, and this appears to be a classic example of too much money chasing yesterday’s news.  I hope that I’m wrong.

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