A year ago, I created a portfolio of 655 publicly-traded stocks based on private equity ownership in each company. I called it the “PE-basket”.
When I checked the performance of this PE-basket at the 6-month mark, it was lagging the performance of the general market. However, now that a full year has passed, the PE-basket has in fact out-performed the broad market as well as the other benchmarks I selected.
Investments in food companies, as a share of the overall private equity investment pie, has moved up and down a bit over time, but tends to hover around 4% of PE deals.
A study of our private equity fund data shows the bulk of the $1.8 trillion in private equity assets are concentrated within a small number of PE firms.
Although the mega funds control a disproportionate percentage of the total AuM, there is a long tail to the distribution of assets on the lower end of the market.
So while the top 50% of funds control 96% of all private equity assets, the remaining 4% of assets is still $75 billion dollars. This is a sizable amount of capital deployed to mid-market companies by 3,200 funds.
Consequently, if your firm offers sell-side advisory services, and you think your client’s company might be too small to attract the attention of the private equity universe because they have traditionally looked at much larger deals, this may no longer be the case.
In a previous blog, I showed the distribution of private equity funds by the amount of capital raised. This study shows the distribution of private equity funds by assets under management (AuM).
The 6,472 private equity buyout funds included in this study account for a staggering $1.8 trillion.
The distribution of fund AuM tends to center around $100 – $250 million, with a median fund size of $65 million.
The relative investment of private equity fund dollars into various industries changes over time. Here’s a chart comparing the PE investment trends for the software, healthcare, oil and energy sectors.
Private equity firms are collectively focusing a larger percentage of the industry’s investment pool into software companies, which now represent ~9.5% of all private equity deals in 2017 YTD.
Our data shows investments in healthcare companies, as a share of the overall private equity investment pool, has increased significantly, representing ~7% of all private equity deals in 2017 YTD.
I ran some analytics on our private equity portfolio company data to view changes in how PE firms invest in various industries over time. The graph below shows the historical investment trend for manufacturing portfolio companies by year.
Investments in manufacturing companies, as a share of the overall private equity investment pool, has decreased, but seems to have settled around 15 – 17%.
I previously discussed the trend in median holding periods for private equity-owned portfolio companies. However, there is a significant standard deviation in the data.
The histogram below shows the distribution of holding periods for portfolio company exits in 2017 YTD.
While the data looks much like a normal distribution for holdings periods 0 – 8 years, there’s an unusual bump up in years 8 – 10. Read my previous explanation about this effect related to the recession of 2008 – 2010.
Also, a large portion of the longest held investments (12+ years), were European private equity firms holding European portfolio companies. Cultural difference.
Holding periods for PE-owned portfolio companies correlate with macro-economic events – lengthening during recessionary periods and shortening during growth & recovery years.
The most recent data from www.PrivateEquityInfo.com shows median portfolio holding periods continue their slight downward trend as private equity firms capitalize on higher valuations.
Industry Trends Report
