Private equity market reaches trillion mark

Private equity reached a landmark $2.0 trillion in assets under management in mid-2007 and raised just over $500bn of new funds in the process, according to data from Private Equity Intelligence. And the industry is predicted to top the $5 trillion mark in the next five to seven years.

In order to calculate the total assets under management for the industry Private Equity Intelligence took assets under management to be the total value of all investments currently held by private equity firms worldwide, plus the committed but as yet uncalled capital available to them from their active vehicles (dry powder).

The results (calculated from over 3,500 funds worldwide) also reveal that dry powder available to the industry stands at $820bn, with most of this available capital coming from funds of the most recent vintages, with 2005 to 2007 accounting for $710bn, or 86% of the total.

Total equity value of companies in private equity firms’ portfolios is estimated at $1,160bn, of which $990bn, or 85% comes from funds in the vintages 2000 to 2006. But, if anything, this is an undervaluation of the true levels as managers tend to be conservative in their valuation of portfolio companies and will often exit at a premium to portfolio valuation.

Impressive as this is, private equity is still a small fish in the financial markets. When compared with global stock markets with capitalization of $60 trillion, private equity amounts to around 3%. Watch this space as the industry expands.