- Private equity continues to see impressive capital inflows.
- Private equity giants could close deals of record size from their.
- There is no shortage of supply of companies looking for institutional capital.
Rebecca Gibson, a partner at Oakley Capital Private Equity, said during a Bloomberg interview the private equity industry is booming from greater demand among investors, especially major pension funds.
Where Demand Comes From
One recent example of a pension fund shifting focus to private equity is the California State Teachers’ Retirement System. The group made the decision in early February to invest more money in private equity, real estate, and other similar inflation-sensitive real assets. The pension fund is simultaneously decreasing its exposure to the public equities market
Gibson added in the Bloomberg interview there is “significant capital” flowing into other alternative investment tools. For example, private debt has grown over 300% over the years and investors are also piling into infrastructure-focused investment tools.
“That creates a sentiment that there is an increasing flow of capital into private equity but it is actually across broader asset classes,” she said.
What To Do With The Cash
Growing investor demand for alternative asset classes has created a scenario where fund managers may struggle to allocate all of the new cash into investments. But, private equities that are flush with new capital could partake in new deal flows of record size, according to Gibson.
For example, Dow Jones component and retail pharmacy giant Boots Walgreens was rumored to be in talks to sell itself to a private equity buyer. The company’s valuation when the rumors surfaced in late 2019 stood north of $50 billion.
In prior years a deal of this size wouldn’t be possible, but with record inflow, a deal in which a private equity firm teams up with co-investors and acquires Boots Walgreens for $70 billion is now possible.
No Shortage Of Supply
According to Gibson, there is no shortage of entrepreneurs and founders looking for their first exposure to institutional capital. Countries like Germany and Switzerland continue to attract compelling businesses that are ripe for investments so they can scale in size.
No interview is complete these days without touching on the coronavirus. Gibson said the private equity community can’t afford to be “complacent” but the virus factors differently based on sectors or geographies.
Also, private equity managers are known for looking at least three to five years out so fund managers can afford to sit back and wait for any clarity before making any investment decision.
“What we focus on doing is really making sure that we understand the risks in our portfolio companies but not making any short-term panic decisions,” she concluded.