What are the top trends in private equity? | Insurance business America
Private equity dry powder has risen to new highs
Insurance News
By Nicole Panteloucos
In the ever-evolving private equity landscape, one term has consistently captured the attention of investors and analysts alike: dry powder.
This financial jargon, which refers to the capital that private equity firms have raised but not yet invested, has seen a remarkable resurgence in recent years.
Seth Gillston (pictured), head of private equity at Chubb, sat down with Insurance Business to discuss the driving forces behind this trend and reflect on the challenges and opportunities facing private equity firms today .
Increase in fundraising
In recent years, private equity firms have undertaken extensive fundraising activities, amassing significant capital from sources such as sovereign wealth funds, pension funds and private investors.
According to Gillston, this influx of cash has led to an unprecedented accumulation of dry powder.
As reported in Pitchbook’s Annual US PE Breakdown 2023, idle capital reached a record $955.7 billion.
“Depending on which source you look at, some dry powder estimates are in the trillions of dollars. “Where is this money going to be used?” Gillston said.
Rating differences
The biggest challenge now is how to deploy this capital effectively in a market where deal flow has slowed due to valuation differences.
“Some of the dry powder accumulation is due to disparities between buyers and sellers. “So a buyer thinks a company is worth x, and the seller thinks it’s worth y, and the deal doesn’t happen because they can’t agree on valuations,” Gillston said.
These discrepancies have led some companies to hold back investments for extended periods, further contributing to dry powder accumulation.
“What we noticed is that the holding period, the average number of years that the private equity firm holds the portfolio company, has increased,” Gillston said.
However, with significant capital at their disposal, Gillston said private equity firms are well positioned to invest in companies and sectors with high potential.
“We are reaching a point where there is so much money waiting to be invested,” he said.
Identify growth potential
According to Gillston, the key to successfully deploying dry powder is identifying and investing in companies that align with market trends and have robust growth potential.
This includes investments in both traditional sectors and emerging areas such as technology, such as life sciences companies that conduct clinical trials, as well as what Gillston calls “climate-plus” companies that focus on sustainability solutions such as wind – and solar energy as well as batteries concentrate storage.
Shaping future industries
Looking ahead, Gillston notes that the use of dry powder will shape the future of emerging industries.
These investments determine how companies expand and what projects they undertake.
“What will companies use once they have this capital? Which offices will they buy? Which locations? Where will they expand to? “What construction projects will they be doing?” Gillston said.
“There are so many companies looking for investment to get to the next level.”
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2024-05-30 15:15:06
www.insurancebusinessmag.com
