December 4, 2024
Private Equity: Big Players Flex Their Muscles
According to a recent PitchBook article, mega PE funds have outstripped their middle market peers when it comes to returns for three quarters in a row. That’s a reversal of five quarters of underperformance following the pandemic, and this excerpt provides some insight as to what’s driving the improved performance by big players:
Greater access to cheaper debt financing and the public market rally have fueled an accelerated recovery in the higher end of the PE market,leading to a streak of superior performance for larger funds, according to Tim Clarke, lead PE analyst at PitchBook. Large PE funds, heavily weighted in large-cap companies, are more sensitive to the macro environment and tend to perform better during market upturns, he said.
The mark-to-market value of their portfolios is more susceptible to public market swings than that of mid-market funds, meaning their returns are higher when public markets thrive and decline more sharply during corrections. Additionally, recent improvements in credit conditions have particularly benefited large deals—PE funds are now more willing to pursue big-ticket buyouts or pay for higher valuations.
Speaking of big-ticket deals, PitchBook says that the total value of $1 billion-plus buyouts grew to $268 billion through November 25, 2024, compared to approximately $200 billion recorded over the same period last year.
– John Jenkins