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Public PE in Q1: Full of money and nowhere to spend it

  • Deal pros note high deal prices in U.S.
  • Dry powder building up
  • Carlyle cites lumpiness in buyout business

Apollo Global Management, Blackstone Group, Carlyle Group, Kohlberg Kravis Roberts & Co and Oaktree Capital Group set the tone by bringing in tens of billions with few if any blockbuster deals under their belt. The comments below came from the firms’ conference calls with Wall Street analysts in April and May.


Leading the pack, Blackstone raised $30 billion for its various fund families in Q1, but deployed only $5 billion. The firm said it will smooth out its capital outlays over the multi-year deployment period of its various funds.

“What’s death for an asset manager is to take more money than they can do that with consistently well,” Blackstone COO Tony James said on a media call.So our first test is, do we think the environment, our capabilities, our organization, how much does that allow us to take that we can invest in the expected time frame very, very well?”


In a similar vein, Apollo raised about $5 billion in the quarter, but deployed just about $2 billion. The firm’s largest inflow came for its MidCap FinCo unit, which booked $2.1 billion in new capital, including $505 million in net segment transfers.

During the quarter, MidCap and Apollo launched a new direct origination platform to focus on direct lending in the senior secured credit market across a range of industries and asset classes. Overall, the firm said it’s harder to invest in credit because of the low yield environment and a large number of competitors taking aim at traditional investments.

“The credit markets continue to be impacted by global quantitative easing and continue to be extremely aggressive, so it’s been more difficult to invest generally,” said Josh Harris, senior managing director at Apollo. “I’m not sure that environment is going to end anytime soon.”


Bill Conway, Carlyle Group’s co-CEO, said the firm started out the year by spending $1.5 billion, below its rate of roughly $2.5 billion in deployed capital per quarter in the past year. He doubts the firm will hit that mark in the current quarter.

“The business is pretty lumpy,” Conway said. “You can find times where you will find very significant [large] opportunities to invest the money, and when we find them, we’re willing to put money to work backing our opinions on them.”

Although oil prices have dropped, buyers and sellers in the energy sector still remain far apart and that has put a damper on deals, he said.

Carlyle’s deal team for its $13 billion Carlyle Partners VI flagship North American buyout fund effectively sat out the quarter with no big transactions.

“Valuations are relatively high across the entire space, energy assets, credit assets, and [private equity],” Conway said.


KKR’s Scott Nuttall said the firm is deploying enough capital to set the stage for the launch of North America Fund XII in 2015, as a follow up to the $9 billion raised for Fund XI in 2012. In the first quarter, most of the $600 million KKR invested from Fund XI went toward its purchase of Air Medical Group from Bain Capital and Brockway Moran & Partners.

“We found some off-the-run opportunities where we think the valuations are attractive where we see real operating improvement opportunities,” said Nuttall, head of Global Capital and Asset Management at KKR. “You don’t need to find a lot of investments for the dollars to be pretty large.”


Meanwhile, Oaktree has amassed $17 billion in dry powder, including $11 billion raised in the first quarter. Bruce Karsh, co-chairman and chief investment officer, said Oaktree Opportunities Fund Xa should deploy its expected $3 billion in capital over the next two years.

“There are obviously other components like strategic credit, European principal, power, real estate debt – those are some of the bigger components of our dry powder,” Karsh said. “And certainly, we expect those strategies to deploy capital.”