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Money Surges into Private Markets as High Prices Persist

The private equity markets kept up their robust pace of fundraising in the second quarter. Buyouts continue to be the top strategy for limited partners, receiving more than 70% of commitments.

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Among the quarter’s other highlights:

  • The share of money flowing to venture capital investments squeaked to double digits in the second quarter after falling to a very rare single-digit figure (9%) in the first
  • Investments by funds into companies increased 69% from the prior quarter, and the announced total volume was up 177% from the first quarter
  • Technology investments were among the highest-priced, with software company multiples in the 12x to 15x EBITDA range, according to Buyouts
  • Buyout industry overall average prices have recently been 10.5x EBITDA, down slightly from a 10.7x peak in 2016
  • Venture capital’s investment rate year to date was down 15% and dollar volume dropped 10%
  • Private equity returns followed public equity’s gains, but returns trailed slightly in shorter-term horizons

Fundraising is currently very frothy. According to Pitchbook, general partners with strong track records are closing funds within four to six months of their launch. This is record fundraising time compression. Limited partners are struggling to complete due diligence and legal documentation in a thorough and timely manner. In many instances, if an investor cannot meet a first close deadline, cutbacks on allocation amounts result. Due to a high level of interest in private equity, rallying public equity markets, and relatively strong distribution rates, we expect that fundraising in 2017 will exceed 2016’s $312 billion.

For more on the private markets see my latest Private Markets Trends.